The Good and Bad Problems for Boeing (BA)
If you believe in superstition, you might be tempted to embrace the idea that all the positive media attention jinxed Boeing (NYSE: BA) on Thursday.
The stock was down 2.55 percent but the broader market had its worst day of 2013 with the S&P 500 down 2.5 percent. The stock decline isn’t the news.
Thursday, two problems for the company came to light—one is a good problem to have while the other, Boeing hopes will go away quickly.
First, the bad.
According to Reuters, United Airlines (NYSE: UAL) flight 125 from London to Houston was diverted to Newark, New Jersey because of a low oil indication in the cockpit. Two days prior, a United Airlines aircraft flying from Denver to Tokyo was diverted to Seattle because of an indication of an oil filter problem.
Why are these problems newsworthy? Because both of those aircraft are 787 Dreamliners—the Boeing aircraft that is under the microscope of regulators, investors, consumers, and rival companies. According to Boeing, the two oil incidents happening within two days of each other are unrelated. While it’s pretty easy to find some commonality between both, we’ll trust Boeing for now.
Also notable and to be fair, understandable, the company was quick to release a statement which pretty much said, “Blame them.”
"We will work with United and General Electric to complete the appropriate maintenance and testing activities, and return the airplane to service."
In other words, “we didn’t make the engine. Blame General Electric (NYSE: GE).”
Now, the good news.
The final airshow tally for Boeing at the Paris Airshow was an impressive $60 billion in orders (at list price) which represents sales of 382 aircraft. On Thursday, Benzinga published a story called, From Worst to First: Boeing. In light of the final figures, it looks like we should have called it, “Worst to Second” because Airbus made deals for 466 planes worth $69 billion.
But here’s the good problem to have. Some of the deals struck in Paris won’t result in delivered aircraft until 2020 and that’s not making the buyers happy.
Qatar Airways Ltd. Chief Executive Officer Akbar Al Baker said, “If they give us slots next decade we will not be interested.”
But the good news for both Boeing and Airbus is that there’s nowhere else for the airlines to take their business. The manufacturers are in the driver’s (or captain’s) seat. Both companies have plans to ramp up production but that will take time.
To a large extent, airline CEOs might be annoyed by the delivery dates but the bottom line for Boeing is that it must be nice to have a robust backlog for the next seven years and your only competitor is in the same boat (or plane). You can bet that this news will be a bullet point in its next quarterly earnings release even if Jiffylube didn’t attach the oil filters on the Dreamliners correctly.
Disclosure: At the time of this writing, Tim Parker had no position in the equities mentioned.
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