Boeing Defies Gravity

Despite setbacks, the company and rival Airbus are still seeing outsized demand.
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The world is so hungry for aircraft that, for the companies that make them, no problem seems too big to overcome.

Boeing

(BA) - Get Report

, for instance, announced in October that the eagerly awaited 787 will be delayed for six months. Boeing's stock has taken a hit, shedding about 15% since the start of last month.

Still, it remains up for the year, and some analysts view the decline as a buying opportunity. On Wednesday, shares traded at $92.57, up 0.9% on the session.

Meanwhile, the orders keep coming. Last week, Chicago-based Boeing said it has 1,047 orders this year, already topping its record 2006 total of 1,044.

The mountain is higher for France's Airbus. During the past two years, its afflictions have included cost overruns and delivery delays for the A380 and A350, as well as a meltdown at parent European Aeronautic Defence & Space Co. Now, because it sells planes in dollars but incurs most of its costs in euros, Airbus is a major victim of the greenback's decline.

Continuing deterioration in the currency's value could have a "life-threatening" impact on the company, CEO Thomas Enders said in a speech last week. The immediate impact, he said, is that "some of our planned product improvements will have to remain pipe dreams."

Yet Airbus finds itself in the midst of a resurgence. This year, the company will almost certainly surpass the record 1,055 orders it set in 2005. This month, it announced 163 orders at the Dubai Air Show, then signed a contract Monday to sell 160 airplanes to China.

Now, the A380 has begun flying, the A350 is popular and the A320 has five years of back orders.

"Airbus has come roaring back in orders and the A350 is doing marvelously, even if the dollar is killing them," says aerospace consultant Scott Hamilton. "As for Boeing, this has been a great year, with the hiccup being the delay in the 787."

With regard to overall orders, "both Airbus and Boeing have said this is the peak, but of course, they said that last year," Hamilton said. "Who would have expected 160 more orders to come out of China?"

Earlier this week, Boeing was the subject of a positive research report by Wachovia Capital Markets analyst Gary Liebowitz.

"We believe that growth in non-U.S. air travel markets, the shift in capacity of U.S. carriers to international markets, and the global need to replace older planes will sustain higher delivery rates for several years, even in the event of a domestic economic slowdown," he wrote.

Despite noting that "787 risks could linger until the first plane is delivered," Liebowitz upgraded Boeing to outperform from market perform, with a valuation range of $103 to $107.

Potential catalysts, he said, include positive news during the company's 787 update next month and continued share buybacks. Wachovia Capital Markets has a financial relationship with Boeing that includes providing securities-related services during the past 12 months.

Meanwhile, Bank of America analyst Robert Stallard maintains a buy rating and a $112 price target for Boeing. Bank of America has a relationship with Boeing that includes providing investment banking services and beneficial ownership of 1% or more of a class of common equity.

In a recent report, Stallard said the approaching 787 update call "may provide some short-term stimulus for the stock, but we think that 787 first flight and a successful ramp-up in 2008 are still likely to be the major requirements for a significant appreciation."