Motley Fool Sees Trouble, Hope For Aerospace Giant
By Tom Gardner, The Motley Fool
No one would question that the past
year has been trying for Boeing. The aerospace giant essentially
turned in a loss for 2003 before one-time gains and adjustments.
Scandals prompted the departure of top executives and put a
lucrative deal with the Air Force in limbo, where it remains
today.
Perhaps most troubling, however, were accusations that the
firm's innovative engineering culture was under siege, and that,
strategically, Boeing had lost its way. The cancellation of its
Sonic Cruiser program, for example, reportedly damaged the
company's reputation with airlines. In the meantime, rival Airbus,
a unit of the European Aeronautic Defense and Space Company,
overtook Boeing to become the world's largest commercial airplane
manufacturer.
There are signs, though, that slowly
-- almost imperceptibly -- the tide is turning. The future of its
commercial airplane business, staked on the 7E7 Dreamliner, appears
to align engineering savvy with smart management. From an
engineering standpoint, the 7E7 promises to usher in a number of
innovations. Final assembly will take just three days, compared to
15 to 18 days for other models. Through widespread use of composite
materials, the 200 to 250-seat 7E7 will consume 20% less fuel and
travel 2,000 miles farther than the plane it's replacing, the 767.
As a result, the new plane's range will be comparable to the much
larger 777.
In terms of management strategy, the 7E7 answers a lot of market
demands. The rise of discount carriers such as Southwest Airlines,
JetBlue, and AirTran shows that keeping costs low is critical to
success in the airline industry. Prospective customers reportedly
have been pleasantly surprised by the 7E7's proposed $120 million
price tag, which would make it comparable to versions of the
less-capable 767. Given the bite jet fuel takes out of airline
profits, the aircraft's efficiency is also undoubtedly a strong
selling point. Finally, more composites in its frame means the
plane likely will be less prone to corrosion, possibly lowering
maintenance costs. With all these savings, the 7E7 promises to
allow cut-rate carriers to extend their onslaught against
traditional airlines into longer-distance markets.
Unfortunately, investors will have to be patient if they hope to
see any returns from the 7E7. The first model is not scheduled for
delivery until 2008, and that's only if the company receives enough
orders to justify production. Boeing only began soliciting this
year, and initial interest in the aircraft at least seems strong.
The News Tribune reported recently that an American carrier is
eyeing the 7E7, and that Boeing believes it will have enough orders
to move forward "sooner rather than later."
For now, Boeing will have to wrestle with its current demons,
especially the Air Force tanker deal. If the company can't salvage
that agreement, it will be in for a rough ride in the near term.
But if investors can make it through the turbulence, there may be
sunny skies ahead.