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Big event today for Boeing (BA) . The company stands at the beginning of a company-changing new product cycle with its next-generation Dreamliner 787, demand for which is strong worldwide. The 787's dramatically different development and production process should result in higher margins going forward, especially as R&D costs decline over the coming years. Near term, though, this same new development process is causing a logistics challenge of airplane-size magnitude. Can Boeing deliver? Today, Boeing hosted a conference call to provide an update on the 787 program. The first flight of the 787 was widely expected in September or October, with first deliveries in May 2008; this was already a pretty condensed time frame for such a big program. The rumors that first flight might be pushed back into November (or even December) now have proven true, as I noted in Columnist Conversation. Still, that's not a catastrophe of Airbus-like proportions. The question is how this will affect first deliveries, if at all. The company says it won't, and management is keeping firm on its May 2008 commitment. There are plenty of Boeing doubters out there; I'm not one of them. The commercial aircraft industry is in the midst of an extended upcycle that is driven, for the first time, by demand from multiple parts of the world (not just the U.S. and Europe). With Boeing's new 787, I believe that no one is better positioned to benefit from that macro tailwind. A few months here or there are insignificant in the grand scheme of things, though continued delays could pressure the shares in the short term (though considering the news, the stock is only down marginally). If the company is actually able to meet its new, revised time line for first test flight and remains on track to deliver planes in May 2008 (while it ramps up its production process), development risk will be greatly reduced and today's news will be viewed more of an opportunity than anything else. RELATED STORIES Twin Disc Ready to Shift Into Overdrive Stay Firm on Furmanite Buy These Four Big Industrial Uglies
At time of publication, Norton's fund was long Boeing, though positions may change at any time.
Charles L. Norton, CFA is a principal of GNI Capital, an equity long/short money management firm that provides investment management services to institutional clients including mutual fund sponsors, trust companies, investment advisory firms, corporate retirement plans and family offices. Mr. Norton is responsible for portfolio management and investment research for all of the company's managed assets, including the Vice Fund (VICEX) and the Generation Wave Growth Fund (GWGFX). Previously, Mr. Norton had been a vice president in the equity research department of a New York-based hedge fund, where he also managed separate long/short equity accounts. Prior to his experience on the buy side, he was an investment banking analyst at Smith Barney. He has a bachelor of science in management degree in finance from Tulane University's A.B. Freeman School of Business, and is a CFA charterholder. He is a member of the CFA Institute and the CFA Society of Dallas-Fort Worth. While Mr. Norton cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.
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