Will Boeing’s performance continue to surprise?

Courtesy Seattlepi/Associated Press

Courtesy Seattlepi/Associated Press

YET again, Boeing the company has surprised aviation observers with better-than-expected second quarter performance – in spite of recent problems with the B787 Dreamliner jet as many of them are apt to point out. Really, should they even be that surprised?

Boeing reported a 13-per-cent increase in March-to-June profit (US$1.09 billion) on the back of growing sales of commercial airplanes and military equipment, fuelled by demands from Asia and the Middle East. Following the lift of the global order that grounded the Dreamliner pending investigations of the fire hazard posed by the plane’s lithium-ion batteries, Boeing delivered 16 of the jet in the second quarter. This, together with the growing sales of the B737s and B777s along with military equipment – again, in spite of cuts by the Pentagon on military spending – has contributed to large inflow of cash.

Consider nevertheless how the sizeable jet business is almost one duopolized by Boeing and Airbus Industries. For many major airlines, it is often a choice of either Boeing or Airbus for an aircraft that boasts similar range and capacity. Also, commitment by airlines to an order is usually made months and years in advance, and so long as the economic climate holds up, default on orders is not expected. Airlines such as British Airways and Virgin Atlantic have openly declared their support of Boeing.

In fact, airlines are known to jostle to be the “first to operate” as an added not just marketing edge but also PR hoopla, as in the case of Singapore Airlines launching the Airbus A380 jet and All Nippon Airways, the Dreamliner. So, with the Dreamliner back up in the sky, the immediate and short-term prospects for Boeing is not going to look any worse – and, as it turned out, better in fact – as the company fulfills its obligation. Boeing has an order for 930 Dreamliner jets to date, and only 66 have been delivered so far.

Early observers had said compensation for the grounding of the Dreamliner in January until late April this year would run into millions and impact negatively on Boeing’s bottom-line. Boeing chief executive W James McNerney Jr said such details of the compensation had been finalized but that the payout would not have a material impact on the plane-maker’s earnings. Referring to the more recent incident when smoke was detected in the Ethiopian Airlines’ Dreamliner jet parked at London Heathrow Airport, Mr McNerney reiterated that the downtime cost of repairing the aircraft would have “very little” financial impact on either Boeing or Ethiopian since the tab would be picked up insurance.

Now, that should take out any more surprise in the near term, and investors might reconsider picking up the Boeing stock before it is too late. If it does surprise yet again, it may not be in spite of but because of the Dreamliner.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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