The giants of the defense industry may be concerned about future cuts in United States and European defense budgets, but Boeing (BA) is well-shielded thanks to its dominant position in civil aviation.
There’s $325 billion in defense cuts and the potential for more when the congressional Super Committee begins chopping away at $1.7 billion in spending over the next decade. The headlines are likely already discounting Boeing’s stock price, which fell more than 11 percent since its third quarter earnings were announced July 28.
Yet less than a third of the company’s revenues come from defense while more than half comes from supplying the world’s airlines. Total sales were $16.5 billion for the quarter with EPS at $1.25, up from analyst expectations of 97 cents.
Luckily for Boeing, airlines are currently on a shopping spree. Within weeks of its third quarter reporting, Thai Airways (TAWUF) finalized its purchase of six 777 aircraft it announced at the Paris Air Show for $1.7 billion, Cathay Pacific (CPCAY) bought 12 777s for $3.3 billion, and Korean Air (KRNRF) bought two 737s for $171.6 million.
Let’s not forget Boeing’s 787 Dreamliner, which will see its first delivery in September to Japan’s ANA (ALNPY) airline. The plane completed all flight tests in mid-August that are required for type certification, bringing it one step closer to market.
“A mild recession in the U.S. and/or Europe seems unlikely in our view to derail the current upcycle, and we think at worst it seems only to have the potential perhaps to shorten it,” said Barclays Capital aerospace analysts, led by Joseph Campbell, Jr., in a recent report.
Also in August, the FAA and the European Aviation Safety Agency both gave the thumbs up for Boeing’s new 747-8 Freighter, again in time for its first delivery in September to Cargolux. The new freighter is more than 18 feet longer, giving cargo companies 16 percent more revenue-generating cargo volume area than the previous model.
Defense, of course, isn’t being left behind. Boeing announced a strategic alliance recently with Siemens to jointly develop and market smart grid technologies to the U.S. Department of Defense, while it also recently announced a $1.6 billion purchase from the UK’s Ministry of Defense for 14 Chinook helicopters. The company next reports in late October.
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