Will Boeing Ever Land?

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Dec 06 2006
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I used to dream of having a plane toy when I was a kid simply because of the huge size of this monster. The only toy then was the 747 with the Boeing logo sticker staring at me proudly. Boeing used to be the only player who monopolize the aerospace industry till the Airbus came into picture but it seems Boeing still command the respect of being the “Big Brother” in this industry.

Boeing (NYSE : BA, quote) score another point when Lufthansa plans to order Boeing’s new stretch version of the 747, in a decision that deals a severe blow to rival giant-plane maker Airbus. Lufthansa, Germany’s largest airline and one of Airbus’ biggest customers, is expected to announce on 6-Dec-2006 a firm order for 20 of Boeing’s new 747-8 (known as Intercontinental) passenger airplanes valued at $5 billion at list prices with an option for another 20.

Boeing recently secured a $15 billion contract from the U.S. Air Force for search and rescue helicopters, prompting Lockheed Martin (NYSE : LMT, quote) and United Technologies (NYSE : UTX, quote)to filed complaints as the whole pie was given to Boeing alone.

When Democrats won control of Congress last month, there was saying that military spending will be cut and Boeing being one of the players will be affected. But Boeing just shot passed all the turbulence as there are plenty of opportunities elsewhere for growth.

Boeing last week indicated that it plans to sell up to $15 billion worth of military products to India over the next 10 years. Japan will also likely to boost its defense spending given anxieties over an unstable North Korea.

The numerous production problems that caused Airbus to delay delivery of its all-new A380 up to two years have been a pleasant bonus for Boeing’s 747 families of airplanes. FedEx (NYSE : FDX, quote) has decided to cancel an order for 10 A380s and replace it with an order for 15 Boeing 777s recently. “Federal Express is the largest air-cargo carrier in the world. They’re a trend setter, and everybody watches their decision.” said Jim Edgar, Boeing’s director of cargo marketing.

It was a market that Airbus had hoped to monopolize with its A380, which seats 555 people in three classes. The 747-8 Intercontinental can carry up to 460 passengers in three classes, but its fuel and aerodynamic efficiency means it can match the bigger A380’s seat-mile costs.

Furthermore U.S. domestic airlines are expected to start upgrading their fleets in the months to come, and according to some analysts the year 2007 and 2008 should be profitable years for U.S. domestic airlines industry.

Of course, much of this news is already reflected in Boeing’s stock, which currently trades at 18.9 times estimated FY2007 earnings of $4.74 per share. Any pullback to the $80 to $88 price range would be an opportunity for investors to start accumulating. Alternatively consider investing in Call options with plenty of time-value.

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