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Boeing Stock is Ready for Takeoff

My family has a very long history with Boeing (NYSE:BA). During WWII, my dad got down on his knees and kissed the runway when the B-17 bomber in which he served as tail gunner (two probables)  made it back, despite the many holes in the fuselage.

Some 40 years later, I got down on my knees and kissed the runway when a tired and rickety Boeing 707, held together with spit and bailing wire, which was first delivered as Dwight Eisenhower’s Air Force One in 1955, flew me and the rest of Reagan’s White House Press Corp to Tokyo. I even tried to buy my own B-17 in the nineties, but was outbid by Paul Allen on behalf of his new Flying Heritage Collection at Washington’s Paine Field. Note to self: never try to outbid Paul Allen again.

So when I received an invitation from senior management to inspect the plane a week before its formal launch, I carved out the extra time from my Seattle strategy luncheon to make a quick trip to the Everett, Washington production facility. Driving there, you are overwhelmed by the enormous scale of things, with a gigantic hanger lined with spanking new 787’s in various stages of colorfully painted colorful foreign airline logos. If Picasso painted on a grand scale, as Christo did, this is what the masterpiece would look like.

The 787 is such a great leap forward on so many fronts that airlines will be forced to buy the plane in large numbers just to stay competitive with each other, as they did with the 747 some 40 years ago. At least 50% of the airframe is made of carbon fiber, which has 40% of the weight of aluminum with three times the strength. Expect to see carbon fiber automobiles hitting the mass market in a decade, as this is how long it takes for airplane technology to migrate into the auto industry.

Fuel efficiency is 20% better than the best engines currently out there, a major consideration when the next economic recovery takes oil up to $150 a barrel again. The maintenance cost is 30% lower.

All Nippon Airways, one of Boeings largest customers, took delivery of the first 787 this morning after a three-year delay. At $185 million each, (BA) has an order backlog of over 800 planes worth $145 billion. The company expects to reach its maximum production rate of 10 planes a year by 2013. Boeing probably won’t become cash flow positive on the product until it has delivered 200-300 aircraft, probably sometime in 2014. After that, the economies of scale really kick in. The company is believed to have some $17-$23 billion in R & D tied up in the plane.

Boeing has oodles of cash, a 2.9% dividend, and an increasingly scarce A+ rating on its debt. Its immensely profitable defense business still accounts for more than half of revenues. The Dreamliner will no doubt deliver a huge kicker for earnings. Its main competitor, Airbus, does have the minor problem in that its planes keep falling apart fully loaded with passengers. If you can get (BA) under $55, you’d be getting a best of breed Company at a mongrel price.