Boeing's Dreamliner: Still Grounded and No Lift-Off in Sight

Boeing Co.’s new 787 Dreamliner has been anything but a dream for investors. Delay after delay has sapped the confidence that the aerospace company can make headway against rival Airbus – and it shows in Boeing’s (BA) share price.

From its high in mid-2007, the stock has slipped 54 per cent, even after the rebound earlier this year. That performance is about 20 percentage points worse than the S&P 500 over the same period. And it is about 18 percentage points worse than the performance of the European Aeronautic Defence & Space Company (EADSF.PK) (or EADS, the owner of Airbus) in U.S.-dollar terms.

David Strauss, an analyst at UBS, is by no means upbeat on Boeing. He has a “sell” recommendation on the stock, along with a 12-month price target of just $30 (U.S.) – about 36 per cent below the current price.

Here’s what’s particularly interesting about his approach: He is keeping a close watch on major components being delivered to Snohomish County Paine Field Airport in Everett, Wash., which is adjacent to production facilities for the 787 Dreamliner. For example, the wings come from Japan, the centre fuselage comes from Italy and Japan and the nose section comes from Kansas.

If Boeing ramps up production, then the delivery of these components – many of which arrive via specially modified 747s, called Dreamlifters – will also spike, if there aren’t further delays.

“Not every Dreamlifter arrival will involve the delivery of major structural components and therefore cannot be used as an exact proxy for production rates,” Mr. Strauss said, in a note. “Nonetheless, we believe tracking the Dreamlifter can help us gauge 787 progress.

“We tracked 16 Dreamlifter flights into Everett in August, including arrivals from Nagoya, Charleston and Wichita. Other than during the machinists’ strike late in 2008, Dreamlifter activity has remained relatively consistent at roughly 15 monthly arrivals into Everett. We are watching for an increase in Dreamlifter activity that is supportive of Boeing’s projected steep production ramp.”

So far, no spike.

Comments

[TinyTim:]

Sad commentary.
Looks like Boeing stepped on it big time.
What to attribute it to??
-Execs move to Chicago
-Labor strife, including engineering professionals
-Manufacturing outsourcing - offshoring logistics strain
-Inexperienced engineers / management due to cost cutting
-Design outsourcing
-Overly complex design - no design for manufacturability considerations

Sep 06 05:08 PM

[john s. gordon:]

logistics strain definitely.
executive offices moved to chicago because traffic congestion @ seattle was unbearable, much lost productive time.
so not only military aircraft suffer production delays?
> jack

Sep 07 09:53 AM

[elated7:]

Remember "Just in time strategy?" imported from Toyota? We need a CEO from engineering background, not from Harvard MBA.

Soon, he wants to build Boeing in China, not in USA.

Sep 07 11:51 AM

[PizzaMan:]

I agree with you about Boeing and the repeated disappointments to the stockholder related to the Dreamliner.

Listening to the latest 787 stockholder updates, I can't help recall it's the same story we heard from conference calls earlier - more room in the schedule in case problems come up, retired more risk... And, if they want to shift all of the blame to Scott Carson, I'm not buying. McNerney, Shanahan, and others need to take their lumps too. How is it that McNerney's compensation is going up at the same time his stockholders are taking that kind of abuse?

Sooner or later that pig will get off the ground. (I'd still bet on another delay pushing first flight beyond the end of the year. No facts, just a lot of disappointment from that company.)

However, I think your proxy for 787 progress is a little early. They can't get the first one finished. Parts for more aircraft can't really be put together at this point. Especially since they have to write off the first three, and the next three won't be that marketable either. If they assembled more right now, that would be more that they would have more to rework. I feel for Boeing suppliers right now. I wouldn't be surprised if the real reason that Boeing bought Vaught was that Global Aeronautica was going to shut it down.

Keep us informed to when the lifter activity does increase. That will let me know that they have proceeded to the next level where they can start building.

Sep 07 11:51 AM