Boeing Sales Surge, But Issues Remain with Safety, Competition

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Appearing recession proof, The Boeing Company (NYSE:BA) (Chicago, Illinois) managed to escape much of the recent U.S. recession. Part of its success in weathering the storm was its ability to adapt on the fly to changing economic times. In part, this resiliency was due to the constant backlog in orders that Boeing maintains each and every year. As a result, order cancellations due to a bad economy were mere hiccups instead of major issues. Boeing saw its sales increase significantly in 2012; however, the aircraft manufacturer still has significant hurdles to overcome.

Boeing increased deliveries by 26% in 2012, which meant that the aerospace giant delivered 601 commercial aircraft in 2012 versus the 477 delivered only a year before. Boeing finished a very successful 2011 just shy of the $70 billion annual sales mark. Through the end of September 2012, Boeing was on a pace to hit $80 billion in annual sales, which includes the sales of both products and services.

While the 787 Dreamliner is making all of the headlines, the mainstay of Boeing's operation is the 737 Max. Boeing currently has orders on the books for in excess of 1,000 such airplanes from both airlines and leasing companies worldwide. Recently, Boeing received a $6 billion order from Aviation Capital Group (ACG) for 60 Max airplanes. The order was finalized in December, and it included 50 Max 8 and 10 Max 9 airplanes.

While the 737 Max has been Boeing's bread and butter for years, some issues have recently come to light. Federal safety officials recently required additional inspections of some Boeing 737 jets after a hole tore open near the tail on a Southwest Airlines plane that was midflight between Nashville, Tennessee, and Baltimore, Maryland, in 2009. The flight safely made an emergency landing in Charleston, West Virginia. The Federal Aviation Administration said that it will seek more detailed inspections for cracks along the tops of the planes, and it has no idea how many planes will need repairs.

Boeing is hoping that the aforementioned 787 Dreamliner will become the flagship aircraft of its lineup. Despite the three-plus years of delays in development, the 787 finally is being produced at a rate of five per month. The intention is to increase the production to 10 per month by the end of 2013. As of early November 2012, Boeing had built 83 airplanes that were 787 Dreamliners, and delivered 47 to some of the 58 customers who have, to date, ordered more than 800 of the aircraft.

But the 787 Dreamliner has not been without its own controversies. The aforementioned three-year delay was due to significant design problems and major supplier issues that took time to be properly resolved. Recently, a 787 Dreamliner caught fire while parked at Boston's Logan International Airport. The fire broke out in the aircraft's mid-fuselage, where its electronics and batteries are housed. This isn't the first problem the 787 has had with electrical issues, as they also grounded 787s owned by Qatar and United Airlines in late 2012. Just this week, another 787 Dreamliner was halted on the runway when fuel began leaking from the plane. No one was injured in either of these recent accidents, but they have underscored the need for additional inspections of the Dreamliner.

Another significant revenue source for Boeing has been the U.S. government. In a much-publicized multiyear dispute with Airbus (Toulouse, France), a subsidiary of European Aeronautic Defense and Space Company (France) (STU:EAD.SG), Boeing ended up on top, winning an $80 billion-plus contract to replace the U.S. Air Force's aerial refueling fleet. Boeing also recently won a contract worth $898 million to upgrade the Air Force's C-17 Globemaster. Another significant source of revenue is the logistic support and engineering services that Boeing supplies to the government. Boeing has and will continue to work on the F/A-18 A-D, F/A-18 E-F and EA-18 G aircraft, providing logistical and engineering support to the government.

Last year, Boeing's major and only real competitor, Airbus, attempted to take a bite out of Boeing's sales by opening another manufacturing plant in France. The Airbus A350 is its version of Boeing's 787 Dreamliner, and the two companies are competing for the same contracts. At times, customers play the companies against each other. Probably the largest customer to attempt this is the Chinese government which, in the past, has either threatened to or has cancelled orders with Boeing and instead placed them with Airbus, because they are not happy with U.S. government policies. Airbus also has announced that it will spend $600 million to build a plant in Alabama to produce the A320 Aircraft, another version of aircraft that will be direct competition to Boeing's 787.

Despite delays in production and electrical issues that have, at times, plagued Boeing, the aircraft manufacturer has remained in an excellent position to be a major player in the growth of the aircraft manufacturing sector. Hundreds of billions of dollars are potentially at play in emerging markets such as China, India and the Middle East over the next 20 years. Boeing is doing its best to position itself to take the lion's share of those sales. While the aircraft manufacturer is counting on its 787 Dreamliner becoming its most popular aircraft, research and development never ends. Look for Boeing to do everything it can to continue its double-digit sales increase from year to year, while it develops the next generations of passenger aircrafts.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.