The Boeing Company
) has decided to return approximately 80% of cash from its free
cash flow to its shareholders via dividends and share buybacks.
This decision comes on the heels of the company's expectation of
lower research and development costs.
Lower research and development costs are a result of the
company's intention to accelerate the production of two of its
planes - the 787 and the 737. This is based on the theory of
economies of scale. Based on the theory, Boeing is getting the
advantage of increasing scale and size, thereby reducing per unit
cost. Also, increase in size improves operational efficiency
thereby leading to lower variable cost.
The company has been working continuously to resolve the 787
battery issue and has also been successfully increasing
production rates of its various programs. In the first quarter of
2013, Commercial Airplanes booked 209 net orders. Segment backlog
remained strong with more than 4,400 airplanes valued at a record
Following nearly 4 months of suspension, Boeing recently resumed
deliveries of its high-tech 787 Dreamliner jet. The company
delivered a new Dreamliner airplane to All Nippon Airways Co., a
unit of ANA Holdings Inc., marking the second year-to-date
Boeing had last handed over a 787 to an airline company before
Jan 16, 2013, when regulators halted all Dreamliners after two
battery overheating incidents in that month. This incident
compelled Boeing to ground all 50 Boeing 787 airplanes.
The company remains on-track to meet its goal of delivering more
than 60 787s this year. Boeing has also boosted its production as
it carried out the first 787 made at the new rate of 7 per month,
up from 5 per month previously. It expects to increase the rate
to 10 per month by 2013-end and will make the first delivery with
this new rate by 2014.
The company has also increased the production rate for 737 from
35 to 38 airplanes per month in Mar 2013. It plans to increase
this number to 42 airplanes per month in 2014. The company
expects to make the first delivery of the 737 MAX in 2017.
Meanwhile, the company indicated that its move to deploy more
cash will not reduce its cash balance of approximately $11
billion as it expects its operating cash flow before pension
contributions to be utilized for the purpose. It expects cash
flow to be more than 8 billion in 2013.
Of late, the company has been following a cash deployment
strategy. In Dec 2012, Boeing raised its quarterly dividend by
10% to 48.5 cents per share from the previous payout of 44 cents
per share. Boeing also announced the resumption of its stock
buyback program with repurchases expected to total between $1.5
billion and $2.0 billion in 2013.
Boeing is the largest aircraft manufacturer in the world in terms
of revenues, orders and deliveries, and one of the largest
aerospace and defense contractors. While on one hand the
efficiency of Boeing planes is increasing, on the other the
production rate is increasing due to improvement in production
However, a large percentage of Boeing's business is generated
within the U.S., and government sale that makes the company prone
to budget deficits and political uncertainty. The company
presently retains a Zacks Rank #3 (Hold).
ALLIANT TECHSYS (ATK): Free Stock Analysis
BOEING CO (BA): Free Stock Analysis Report
ERICKSON AIR-CR (EAC): Free Stock Analysis
WESCO AIRCRAFT (WAIR): Free Stock Analysis
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Erickson Air-Crane Inc.
Wesco Aircraft Holdings, Inc.
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). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy),
Wesco Aircraft and Alliant Techsystems hold a Zacks Rank #2