Among the largest global aircraft manufacturers, The Boeing Company (NYSE:BA) has been in the news recently owing to its latest, highly innovative, and complex product, the 787 Dreamliner. The Boeing Company (NYSE:BA)’s plans of creating a fuel efficient aircraft that could fly long routes has been caught up in a series of hazardous mishaps, compelling the authorities to review its functioning.
However, Boeing has modestly rallied, and with almost a month away from its next earnings call, let us analyze and check if it’s a good investment bet.
Demand is increasing and so are Boeing’s production rates
The Boeing Company (NYSE:BA) has conclusively decided to pump up production rates for its commercial aircrafts, even though authorities have grounded most of its 787 Dreamliners. Obviously, the company must have researched well into the demand conditions prevailing in the market before going for such a decision. As per data from commercial airliners and industry data aggregators, passenger traffic is growing rapidly as a result of a plethora of deals being provided by air suppliers, and more so by airline aggregators.
From an economics point of view, passenger traffic and aircrafts can be fairly viewed as complementary goods, and hence, a spur in traffic is coming to aircraft manufacturers as higher demand for aircrafts. Well, this is something to be happy about as the company has got good business ahead, and the decision to increase production has been taken at the right time to leverage excessive demand.
The tough get going
A good number of investors gave up on the company’s stock after its latest product, the 787 Dreamliner, was hit by questions from authorities. Surprisingly though, the stock has rallied more than 30% to a price of around $85, which is being regretted by investors and analysts alike who gave up on the stock.
You might think of this as a one-time strange phenomenon. However, I would like to differ on such analogy. An upward movement of more than 30% during such unfavorable period suggests that there is still something keeping investors optimistic. We have to understand that it’s only one of its huge portfolio of products that is in question, and the rest of its business is still going strong based on robust fundamentals.
A look at industry rivals
In the world of commercial aircrafts there are only two ruling giants, one of which is The Boeing Company (NYSE:BA) and the other is Airbus. In its latest press release, Airbus highlighted that Asia-Pacific will drive global demand for high eco-efficient aircrafts over the next two decades, and will take delivery of around 10,000 new passenger and cargo aircrafts during this period.
This proves the abundant demand for aircrafts, which will range from wide-bodied to huge ones that have a seating capacity of at least 400 passengers. Both The Boeing Company (NYSE:BA) and Airbus have a complete range of products that will meet the needs of such markets making efficiency the key metric in the decision making process. Boeing has already made a move into making eco-efficient aircrafts with the 787 Dreamliner.
In the defense and security space, Boeing faces competition from Lockheed Martin Corporation (NYSE:LMT), which has an innovative and exhaustive range of defense aircrafts in its product portfolio. If we just take 2012 revenues as a comparative metric, then we would find that Lockheed Martin Corporation (NYSE:LMT) leads the charge as its business model is comprehensive, and entails more revenue generation streams, specifically in terms of IT services. However, Boeing supersedes Lockheed Martin Corporation (NYSE:LMT) when we just talk of military aircrafts and other tangible product offerings.