A company's sales can only be as strong as the health of its customers, and that's causing some on Wall Street to question

Boeing's

(BA) - Get Report

highflying stock price.

The Chicago-based aerospace company's shares have recently traded close to their 52-week high of $55.48, set Nov. 18.

The stock's gains, however, do not match the fortunes of Boeing's commercial aviation customers -- the airlines that buy the planes. Although passenger traffic is on the rise at most U.S. airlines, carriers have been unable to raise fares in the face of industry overcapacity and fierce price competition. Unit revenue declined 2.9% at eight major airlines in October. Meanwhile, the high price of jet fuel has caused expenses to balloon.

Tough times demand tough measures. And it appears carriers are trying to keep a lid on expenses by deferring jet orders. American Airlines parent

AMR

(AMR)

on Nov. 22 announced a deal with Boeing allowing it to defer 54 of 56 aircraft originally scheduled for delivery between 2006 and 2010. The move will postpone $2.7 billion in capital spending over that period.

Given such an environment, some analysts are questioning the upward trajectory of Boeing shares. Early last month, James Higgins at Credit Suisse First Boston downgraded the stock to neutral from outperform and gave it a 12-month price target of $49, citing indications AMR was renegotiating its Boeing deliveries. The analyst predicted other U.S. network (or legacy) carriers might follow American's lead. (Credit Suisse First Boston does and seeks to do business with companies covered in its research reports.)

Later, Glenn Engel at Goldman Sachs issued a research note pointing to a "disconnect" between Boeing's share price and airline industry revenue. Engel has an underperform rating on Boeing shares.

"Over the past 20 years, Boeing's stock price has closely tracked changes in unit revenues for U.S. carriers," Engel wrote in a research note. "Investors tend to purchase Boeing shares as the revenue picture improves for airlines followed by orders for new aircraft. During the past year, however, Boeing stock and other aerospace stocks tied to the OEM (original equipment manufacturer) cycle have continued to rise despite a deteriorating revenue picture. We believe that this disconnect cannot continue with airline balance sheets in the distressed state where they currently stand." (Goldman Sachs does and seeks to do business with companies covered in its research reports.)

Other analysts, however, say such concerns may be overblown.

Suzanne Betts, an analyst at Argus Research, said orders from low-cost airlines gaining market share from troubled network carriers, along with overseas purchases, could make up for any network deferrals or cancellations.

"Over the last couple of years, a lot of legacy carriers haven't ordered as many planes as international and low-cost carriers," she said. Boeing "will make up for it among low-cost carriers and the international purchasers."

Betts has a $55 price target and a buy rating on Boeing. (Argus doesn't do business with the companies it covers. Neither Betts nor Argus owns Boeing shares.)

Richard Aboulafia, an analyst at the Teal Group in Fairfax, Va., said, "People still need to fly. Whether the business goes to low-cost airlines or legacy carriers, there will be planes sold."

One important factor to consider when looking at Boeing's business is that commercial planes do not generate the majority of the company's revenue, Aboulafia noted. Revenue from Boeing's commercial airplane unit was $4.64 billion in the third quarter, about 35% of the company's $13.15 billion total. Its defense business accounted for $8.2 billion.

"One reason proposed for the merger with McDonnell Douglas in 1997 was that it insulated Boeing from the commercial jet market," he said. "The reality is that Boeing is behaving much better than it has in comparable down markets for the aircraft industry."

Still, there is risk for negative news for defense contractors as a whole, wrote Credit Suisse's Higgins, and that potential factored into his downgrade.

Boeing itself is facing intense scrutiny of its Pentagon contracts, after former Air Force procurement official Darleen Druyun confessed to favoring the company in exchange for a Boeing job.

Boeing wasn't surprised by the American Airlines deferral, company spokeswoman Amanda Landers said. "We've been working with airlines to balance supply with market demand, which means, in American's case, deferring deliveries," she said, noting the industry currently suffers from overcapacity. Last month, Boeing said it already had factored the American Airlines agreement into its financial guidance.

In the commercial market, Boeing faces stiff competition from across the Atlantic for both the low-cost and overseas markets. When low-cost upstart

JetBlue

(JBLU) - Get Report

was forming in 1999, it selected Airbus jets for its fleet. Airbus is a joint venture of European Aeronautic Defence & Space Co. and BAE Systems PLC. On Monday, Airbus officials said they clinched a $1.3 billion deal to sell 23 planes to Chinese flag carrier Air China Ltd.

In a move widely viewed as a reaction to intensifying competition from Airbus, Boeing last week replaced its head of commercial jet sales.

Nevertheless, Boeing has some good customers in the low-cost arena. "Boeing still has the largest single low-cost carrier in its pocket," said Aboulafia, referring to

Southwest Airlines

(LUV) - Get Report

. As of Oct. 1, the carrier's 415-plane fleet consisted entirely of Boeing 737s.

Another U.S. low-cost carrier,

AirTran Holdings

(AAI)

, has an all-Boeing flight as well.

"If Boeing can hold the line at 40% to 50% of the commercial jet market -- and the more profitable 40% to 50% of that market -- then competition is not so much of a concern." Aboulafia said. "What does cause concern is if you continue to see erosion."

Business from low-cost carriers may not offset waning business from network carriers, according to Goldman's Engel. "With narrow-body aircraft being the main driver behind Boeing's and Airbus' optimistic production rates, we continue to be cautious on OE (original equipment) deliveries as we believe that excess supply will force

low-cost carrier growth plans to be scaled back. Margin deceleration has already hit most low-cost carriers and, with capacity expected to grow 4% to 5% in 2005, we believe that pressure will continue."

A lot could change, however, in the next few years. Potential deferrals from network carriers likely would be for deliveries scheduled a year or more out, but by 2006 and 2007 network carriers may have recovered from their current woes, said Betts.

Also, Boeing is planning that deliveries for its 7E7 Dreamliner will start in 2008, and the super-efficient mid- to long-range plane appears to be generating a lot of interest abroad, she said.

So far, Boeing has confirmed orders for 52 7E7s. Although that's below the target for 200, the company had set for the end of this year, executives reportedly have said the company would not be concerned if it didn't meet its target until January or February of next year.

Boeing remains optimistic about the 7E7 program. In recent months, the company has received proposal acceptances (less-definitive agreements than confirmed orders) for about 200 7E7s from roughly two dozen airlines, said spokeswoman Landers. The company's current forecast for the middle-market segment, of which the 7E7 will become the flagship, is for 3,500 planes over the next 20 years, she added.