SEATTLE ( TheStreet) -- It could be that Boeing ( BA - Get Report) is headed into a golden age, as demand grows from airlines and from international defense customers. Wall Street has bought into this rosy view, pushing Boeing up 30% this year, making it the Dow's third-best performer. Analysts are estimating earnings of $1.05 a share when Boeing reports on Wednesday, which represents a sharp reversal from a loss of $2.22 a share a year earlier.
"Boeing at this point in its history is as well-positioned as I have ever seen it," said Davenport & Co. analyst Carter Leake. "It's a duopolist, with airplanes in short supply," Leake said. "I am looking out ten years and it looks damn good." Yet the Boeing story also has a troubling side. Development of the 787 veered far off course. The true cost of this variance is not known and may never be known. Another new airplane, the 747-800 freighter, was also delayed, as resources were diverted to the 787. Delays accounted for the year-ago third quarter loss. In an Oct. 1 report, Gleacher & Co. analyst Peter Arment sketched out the dichotomy within Boeing. On the one hand, he said, "Boeing is incurring more costs on the 747-8 program" and "the 787 and 747-8 still have headline risks," he said. On the other hand, "program accounting benefits coupled with continued strong performance within the 737 and 777 platforms have partially offset the increase in costs." In fact, Arment noted, "a higher number of 777 deliveries and continuing strong profit contributions from both the 777 and 737 programs" led him to increase his estimate to $1.06 a share. Other analysts also raised estimates, so that consensus has risen from 99 cents at the start of the month. To extrapolate, good Boeing -- the 737 and the 777 -- profitably supports bad Boeing, the delay-wracked development programs for the 787 and the 747-800. Meanwhile, despite anticipated declines in U.S. defense spending, Boeing Defense, Space and Security seems unlikely to suffer. Arment noted that "international orders
are expected to boost the long-term outlook for defense," which accounts for about 50% of Boeing revenue, estimated to be about $65 billion in 2010. For Boeing Commercial Aircraft, the bottom line is always its order book, equivalent to seven years of revenues. Most orders are for the 737, the best-selling airplane in history. Boeing has delivered 6,543 of them and has 2,127 outstanding orders. About 4,000 aircraft are currently in service, flown by airlines in 115 countries. At any given moment, 1,200 737s are in the air somewhere in the world.
Analysis is more difficult because "program accounting" allows the upfront costs for developing a new plane to be spread over several future years. "They can stretch out costs to such an extent you don't know what break even truly is," Hamilton said. Normally, about 400 to 500 airplanes must be delivered and paid for before a program breaks even. Analysts have estimated that it could take delivery of three or four times that many 787s before the airplane is profitable. Leake's view is that Boeing could have done better, but its problems are underwhelming. "I'm as frustrated as the next guy with Boeing's painfully slow refusal to acknowledge that their 787 timeline was too compressed," he said. "But delays, reworks, and engine problems are the normal course of business in aircraft design. "Once Boeing starts to approach its 10 aircraft per month production target in late 2013, this will all be forgotten," Leake said. -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: