) most important business is the commercial airplanes division,
which accounts for over 55% of our
$87 price estimate for Boeing
. The division provides commercial jet aircraft (such as 747, 767
and 777) to airline and leasing companies worldwide. Boeing also
supplies military aircraft (such as the CH-47 Chinook
Helicopter and the F/A-18 Hornet) and other defense, space and
security-based products such as missile systems, satellite systems,
intelligence and surveillance systems. Boeing competes in the
commercial aircraft segment with aerospace giant Airbus as well as
) and other regional companies. In the defense segment, Boeing
competes with other large defense contractors such as Lockheed
), Northrop Grumman (
) and BAE Systems.
Here we highlight 2 of the most important drivers for Boeing's
business and the upside as well as downside risk posed for Boeing's
stock based on these drivers.
Boeing's Share of Global Commercial Aircraft
: Boeing constituted over 38% of all commercial aircraft
deliveries in 2010.
Commercial Airplanes EBITDA Margin
: EBITDA margin for the commercial airplanes division stood at
around 16% in 2010.
20% Upside Scenario: $105 Trefis Price Estimate for
1. Increased in global commercial aircraft deliveries
We currently forecast Boeing's share of global commercial
aircraft to increase in future years, primarily due to the expected
commercial launch of the Boeing 787 Dreamliner in the latter half
of 2011. With over 800 unfilled orders pending for the 787 and
given its superior features, it represents a significant driver in
capturing market share in the commercial aircraft sector. Boeing's
market share can grow faster-than-expected given its higher fuel
efficiency over similar sized-aircraft.
There could be a 10% upside to the Trefis price estimate if
Boeing's share was to reach 52% (instead of the currently forecast
46%) by the end of the Trefis forecast period.
2. Improved EBITDA margins through new airplanes
We currently forecast commercial airplane EBITDA margin to stay
stable at around 16%. We expect higher earnings from the Boeing 787
and 747-8 (expected to be launched later this year) to be offset by
future commercial launch of the Airbus A350, which would compete
directly against the 787 in size, range and fuel efficiency, hence
keeping EBITDA margin stable. Margins can see upside if the
projected launch of A350 is delayed (currently planned in
There could be 10% upside to the Trefis price estimate if
commercial airplanes EBITDA margin increased to around 18% by the
end of the Trefis forecast period.
20% Downside Scenario: $70 Trefis Price Estimate for
1. Increased competition from Airbus (-10%):
Although we currently forecast Boeing's share to reach around
46% by the end of the forecast period, increased competition to the
Boeing 787 can come from the Airbus, which claims that the A350
would have lower operating costs than the 787. Currently, the A350
has over 550 unfilled orders from 36 customers, and success of this
aircraft would directly impact Boeing's share in the commercial
There could be a 10% downside to the Trefis price estimate if
Boeing's share was to fall to 40% (instead of the currently
forecast 46%) by the end of the Trefis forecast period.
2. Development delays pressure EBITDA margins
Our current forecast of stable EBITDA margin for commercial
airplanes is based on the projected launch of the Boeing 787 later
this year. However, the 787 has a track record of various
development and flight testing delays, and any further postponement
would add to production costs as well as possible penalties from
the customers. This would provide sizable downside to EBITDA margin
for the division.
There could be 10% downside to the Trefis price estimate if
commercial airplanes EBITDA margin decreased to around 15% by the
end of the Trefis forecast period.
See our full analysis for Boeing's Stock