Original Article: http://www.forbes.com
Deliveries of Boeing’s 787 Dreamliner will be delayed yet again in a worrying sign for the company. In our previous note on Boeing’s Q2 2011 results, we highlighted the importance of the 787 for Boeing’s overall value and outlook.
Extended delays on the 787 Dreamliner would result in its global commercial aircraft market share slipping while adding additional financial losses in the form of compensation/penalties from buyers. Boeing offered up to $500 million to Air India for its initial delays, which the India flagship carrier rejected.
Boeing competes in the commercial aircraft market with aerospace giant Airbus as well as Embraer and Bombardier. The company also competes in the defense segment with large defense contractors such as Lockheed Martin, Northrop Grummann and BAE Systems.
We currently have a price estimate of near $91 for Boeing’s stock, which is well above the current market price. Commercial airplane deliveries account for over 50% of our price estimate.
Delays Would Directly Affect Margins
The arrival of the Dreamliner is crucial for Air India at the moment as it is already facing a cash crunch and lacks any medium haul aircraft in its fleet. The airline is claiming a revenue loss of around INR 60 billion (around $1.5 billion) due to the 787 delay, and Air India is already negotiating with Boeing for compensation on the delay
These claims would have a direct adverse affect on the commercial airplane profit margin for the company. Boeing needs to ramp-up production to avoid future delays and additional compensation claims by disgruntled customers waiting for the 787.
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