Headwinds For Boeing

Jul.22.13 | About: The Boeing (BA)

As an industry leader, The Boeing Company (NYSE:BA) is losing its market share due to a number of reasons that have negatively impacted its reputation. One of the reasons is the technical problems identified in its airplanes, which have made its customers and passengers a little edgy. Let's take an overview of the macro and micro factors which might impact (favorable and unfavorable) its reputation.

Incidents pose risks

On Friday July 12, 2013, Boeing's 787 Dreamliner caught fire at Britain's Heathrow airport. This plane is operated by Ethiopian Airlines. After this news, Boeing share prices depreciated 7%, closing at $101.87 on Friday. This Monday, Boeing has managed to rise 3.7% to close at $105.66 a share. After this news, no airline grounded its planes. According to the investigation, the plane's batteries were not the cause of the fire. The incident was unwelcome news, but the stock rebounded because this incident is considered as a one-time problem since battery faults were not blamed as the reason.

However, the Dreamliner was grounded in January due to battery problems and Ethiopian Airlines was one of the first to re-fly the Dreamliner again but the Boeing was quick to fix the faults, which allowed it to resume the service. If these types of incidents continue to occur, the time is near when the FAA (Federal Aviation Administration) will again ground its planes worldwide due to which its stock might face unanticipated risks in the near future.

Recent performance

Boeing's first-quarter revenue slipped $18.9 billion, down 3% from $19.4 billion a year earlier. Net income jumped to $1.1 billion or $1.44 per share from $923 million or $1.22 per share in the first quarter of 2012. According to Boeing, higher deliveries on the 737 and 777 were offset by lower 787 deliveries. After excluding the core earnings, which include pension cost and other ancillary items, earnings per share rose 5% to $1.73 per share, up from $1.40 a share whereas analysts had expected an earnings per share of $1.49, according to Thomson Reuters.

Headwinds at Paris Airshow

At the Paris Airshow, Airbus (owned by the European Aeronautic Defence and Space Company EADS N.V. (OTC: EADSY) gave stiff competition to Boeing in the battle for orders. Airbus booked 466 aircraft orders as compared to the 442 orders received by Boeing. Boeing might face headwinds at the Dubai Airshow, which is considered the biggest Airshow in its 26-year history. Emirates Airline will be a major customer in this Airshow as it shall be seeking to replace its 777 generation Boeing planes.

Spirit Airlines (NASDAQ:SAVE) has decided not to use Boeing planes any more. Spirit Airline has ordered 20 Airbus A321 aircraft. In addition to that, Spirit Airlines has also agreed to convert 10 of its existing A320 orders to the larger A321. This contract was made during the Paris Air show and the new orders are worth $2.1 billion.

Boeing had been confident about winning the orders from Spirit Airlines regarding the replacement of its MD-80 fleet, but the company was convinced by the Airbus A320 family, which gives Airbus a competitive advantage over Boeing. Spirit Airlines provides 200 daily flights to 50 destinations in the United States, Latin America, and the Caribbean. The company has currently 45 Airbus aircraft in its garage.


Boeing might face a further decline in order growth if the issues related to batteries is not solved. The same thing happened in the Paris Air show. Airbus is giving stiff competition to Boeing due to which it is likely that Airbus will again win the order battle in the Dubai Airshow. It might be that the Dreamliner will be grounded again so investors should not hold positions in this stock to avoid any loss in the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The article has been written by Equity Whisper's industrials analyst. Equity Whisper is not receiving compensation for it (other than from Seeking Alpha). Equity Whisper has no business relationship with any company whose stock is mentioned in this article.