U.S. Markets closed

Boeing's (BA) 787 Fleet Hit by Aeroflot's Order Cancellation

Zacks Equity Research

The Boeing Company’s BA commercial business line recently took a hit, following the order cancellations made by Russian carrier, Aeroflot, for the former’s 787 fleet. Per major media reports, Aeroflot has canceled orders for 22 787 jets worth around $5.5 billion at list prices.

This added to Boeing’s ongoing struggle for the past few months, with the grounding of its 737 fleet and the subsequent delay in its return to service, on account of certain technical inefficiencies. The recent order cancellation has led to an additional uncertainty for Boeing’s future production of 787 Dreamliner.

Weak Demand Trends to Hurt Boeing

Recently, a weak demand trend has been observed for larger, long-haul aircraft like Boeing’s 787 and 777 series, and Airbus’ A330 and A350. The downside can primarily be attributable to alarming global trade tensions, global economic concerns and the increased ability of smaller, narrow-body aircraft equipped to fly long distances.

Notably, a decline in widebody orders may disrupt the balance in aircraft pricing, as Boeing would now have to give unusually steep discounts to its potential customers. In fact, the order cancellation is going to hit the world’s largest planemaker even more, as the 787-product line’s rate has been recently increased to 14 aircraft per month from 12.

Industry sources are concerned that, excluding new orders, Boeing will face a cut down in the production of 787 by 2022 as the grounding of the smaller 737 MAX enters the eighth month.

Hence, Boeing’s commercial jet business has been reporting poor financial performance over the last couple of quarters and is expected to remain under pressure at least in the near term.

A Slim Ray of Hope

Unquestionably, the Aeroflot order cancelation is a big blow to Boeing’s efforts for improving its overall cash flow structure by increasing production rates for its large aircraft. However, on a brighter note, the company managed to acquire a new order from Air New Zealand for eight of its largest 787-10 model toward the end of May. Also, in June, it received purchase commitments from Korean Airlines and Air Lease Corporation.

If these orders materialize into deliveries, Boeing’s commercial business line losses might be mitigated to a certain extent.

Price Movement

Boeing’s stock has gained about 3% in a year compared with the industry’s growth of 7.2%.

Zacks Rank & Key Picks

Boeing currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Lockheed Martin Corporation LMT, Heico Corporation HEI and Teledyne Technologies Incorporated TDY. While Teledyne Technologies sports a Zacks Rank #1 (Strong Buy), Lockheed Martin and Heico Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lockheed Martin came up with average positive earnings surprise of 16.03% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 0.52% to $21.22 in the past 60 days.

Heico came up with average positive earnings surprise of 10.07% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 3.1% to $2.31 over the past 60 days.

Teledyne Technologies came up with average positive earnings surprise of 9.26% in the last four quarters. Its long-term growth estimates currently stand at 7.5%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>