Is Boeing Set For Takeoff?

Michael Teague |

All Nippon was the first airline to receive deliveries of the newly repaired Boeing (BA) 787 Dreamliner on Tuesday. They were the second of two Japanese airlines to have their Boeing-made planes grounded within a week last January after incidents in which a new lithium-ion battery system overheated and caught fire, filling the cabins with smoke.

Given the high-profile nature of the incidents, that were the culmination of a series of glitches involving other parts of the plane, and fears of potentially exorbitant repair costs, shares took a dip in late January, at one point trading for as low as $72.81.

That price-drop, however, was nowhere near as dramatic as the subsequent rebound of Boeing's shares, to $94.70 at Tuesday's closing, after hitting a 52-week high of $96.19 during trading.

This can be explained in part by the company's seemingly swift and decisive handling of the battery fiasco. On April 19th, approximately three months after a Japan Airlines Dreamliner was grounded in Boston, followed a week later in Japan by an identical mishap involving an All Nippon plane, Boeing's redesign of the battery system was approved by the Federal Aviation Administration.

Another reason for the 29 percent increase in Boeing's shares in 2013 is summed up nicely in the earnings report the company released late last month. The company is doing well outside of commercial aircraft, and while revenue for the first quarter of 2013 was slightly down across military aircraft, networking & space systems, and global services, earnings from operations in all those categories were up significantly. And in terms of commercial aircraft, the 787 is by no means Boeing's only product either.

Furthermore, with Q1 earnings per share of $1.73, Boeing managed claims it managed to absorb the bulk of the costs of the Dreamliner repairs and still beat estimates by a robust $0.24. The company has so far not provided any cost-estimates for the repairs, but engineers worked a combined 200,000 hours on the problem, and at least 50 planes that had already been delivered will have to be fixed, to the tune of $500,000 each.

The company said on Tuesday that it is still on track to deliver more than 60 of the new planes by the end of the year. Ethiopian Airlines started commercial flights using the 787 two weeks ago, and the first U.S. Dreamliner flight takes off courtesy of United Airlines (UAL) on Monday from Houston to Chicago.

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Companies

Symbol Name Price Change % Volume
UAL United Continental Holdings 75.17 2.43 3.34 5,148,603
BA Boeing Company (The) 156.49 1.10 0.71 2,707,872
CLMT Calumet Specialty Products Partners L.P. 4.55 -0.05 -1.09 470,296

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