Boeing traders shrug off 747 delay

Shares continue to climb despite another setback for the new freighter.

By TheStreet Staff Sep 30, 2010 1:25PM

Air travel © Christie & Cole/Corbis By Ted Reed, TheStreet


Boeing (BA) investors didn't appear too concerned about a newly announced delay in the delivery of its 747 freighter Thursday.


In early afternoon trading Thursday, Boeing stock was up 1.3% to $66.85 despite the news. The shares opened the year at $55.72 and have gained about 25% year to date. Boeing remains the third-best-performing stock in the Dow average, behind Caterpillar (CAT) and DuPont (DD).


Boeing said Thursday the first delivery of the 747 cargo aircraft is now expected in mid-2011.


The aircraft maker said it has found a low-frequency vibration in certain flight conditions, as well as an underperforming aileron actuator.

"While neither issue requires structural changes to the airplane, they have led to disruptions to certification testing, which the program was unable to offset within the prior schedule," the company said. The schedule change is not expected to have a material impact on 2010 financial results.

Boeing has been plagued by delays in delivery of its most important new products, the 747 freighter and the 787, now expected early in 2011.

But the company has benefited from the improving economy, increasing demand for aircraft and its current status as one of the world's two manufacturers of big jets. It recently announced a production increase for the 737, the world's most popular aircraft.


Additionally, after the market closed Wednesday, the Defense Department said the U.S. Air Force has signed an eight-year, $11.9 billion contract with Boeing for upgrades to B-52 bombers. During the day Wednesday, Boeing shares had traded up $1.45 to $65.97.


In a report issued Thursday, RBC Capital Markets analyst Rob Stallard said the 747 delay is no big deal and reiterated an outperform on the stock.


"A delay to the initial delivery date of the 747-8 has been widely predicted, and we think this will not come as a huge surprise," Stallard wrote. "We had assumed that a minor delay would cost Boeing $150m, and so the lack of a charge is somewhat odd. Whilst the financial impact is minimal, we think this latest delay reinforces investor skepticism over Boeing's ability to deliver the goods, with a read across to the 787."


Still, Stallard thinks the delay may have a "disguised blessing," in that it may help to dissuade Boeing from launching a 737 with new engines, "which saves R&D for better projects and minimizes risk."


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