Boeing Dreamliner Gets FAA Approval - Analyst Blog


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The Boeing Company ( BA ) announced that it received an amended type certificate from the U.S. Federal Aviation Administration or FAA for the 787-8 Dreamliner equipped with General Electric Company 's ( GE ) GEnx (General Electric Next-generation) engines.

The General Electric GEnx engine is an advanced dual rotor, axial flow, high-bypass turbofan jet engine for Boeing airplanes. The amended type certificate from the FAA formally recognizes that the 787 with GE engines has demonstrated compliance with rigorous federal regulations. Boeing noted that 60 customers around the world have ordered more than 870 Dreamliners.

Besides its commercial airplanes business, Boeing's future prospects to a large extent depends on the defense budget, as a major chunk of its revenue comes from government contracts. The turbulent Eurozone and rising possibility of U.S Defense cutback will impact the orders and eventually slow down the growth trajectory of the company.

The positive catalyst for the company is its strong presence in the international commercial airline markets, which will allow the company to capitalize on the expected growth in the commercial space. Boeing also caters to international customers and allies with international partners to increase efficiency through exchange of technology. Apart from that, its strong balance sheet and consistent cash flows provide it with necessary financial support to increase shareholders' value and make strategic acquisitions.

The headwinds for the company in commercial aerospace in 2012 will be the rising cost of fuel and a weak financial outlook in Europe, which will likely make the market turbulent in 2012. Concurring with this view, International Air Transport Association (IATA) said, the profitability of the commercial airline operator will take a dip in 2012 compared to the last two years. The downcast is mainly due to rising oil prices. IATA expects airlines to turn a global profit of $3.0 billion in 2012 for a 0.5% margin. This $500 million downgrade from its December 2011 forecast is primarily because of a rise in the expected average price of oil to $115 per barrel, up from the previously expected $99.

Boeing generates 60% of its defense revenue from fixed price contracts. These contracts always have a risk of margin erosion or losses due to escalation in costs. Apart from that rising competition and delay in development and delivery of commercial airplane also impact the future prospects of the company. Boeing delivered its first 787 series airplane after a delay of more than three years, which resulted in a few cancellations of orders.

Chicago-based Boeing Co. has a Zacks #3 Rank, which translates into a short-term Hold rating. Taking into consideration the present scenario we decided to maintain a Neutral stance over the longer run on the company, until we find more positive catalysts driving the results.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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