Boeing Reports Q1 Deliveries

The Boeing Company ( BA - Analyst Report ) announced deliveries across its commercial and defense operations for the first quarter of 2012. In the commercial space, the airliner delivered 137 airplanes during the first quarter of 2012.

The 737 model continues to be a major pillar of Boeing’s strength in the commercial airplane sector with deliveries of 99 airplanes, followed by its 777 model with 20 deliveries in the first quarter. Both these models continue to do well due to their fuel efficiency and lower operating costs compared with competing models. The company during the quarter also delivered seven 767s, six 747s, and five 787.

Boeing’s deliveries in the defense and space business were at 33 in the first quarter of 2012. Of these 12 came from F-18 and EA-18G fighter jets, and 10 from Chinook helicopters. Of the rest, five were F-15 fighters, three satellites, two C-17 transport aircrafts and one P-8 reconnaissance aircraft.

Boeing enjoys a coveted position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries. Besides, it is one of the leading global aerospace and defense contractors. Also, its revenues are spread across more than 90 countries.

The positive catalyst for the company is its strong presence in the international commercial airline markets, which will allow it to capitalize on the expected growth in the commercial space. Boeing also caters to international customers and allies with international partners to increase efficiency through exchange of technology. Apart from that, its strong balance sheet and consistent cash flows provide it with necessary financial support to increase shareholders’ value and make strategic acquisitions.

The headwinds for the company in commercial aerospace in 2012 will be the rising cost of fuel and a weak financial outlook in Europe, which will likely make the market turbulent in 2012. Concurring with this view, International Air Transport Association (IATA) said, the profitability of the commercial airline operator will take a dip in 2012 compared to the last two years. The downcast is mainly due to rising oil prices. IATA expects airlines to turn a global profit of $3.0 billion in 2012 for a 0.5% margin. This represents a $500 million downgrade from its December 2011 forecast, primarily on the grounds of higher expected average price of oil, at $115 per barrel, up from the previously expected $99.

Boeing generates 60% of its defense revenue from fixed price contracts. These contracts always have a risk of margin erosion or run into losses due to escalation in costs. Rising competition and delay in development and delivery of commercial airplane also impact the future prospects of the company.

Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. This is in sync with other aerospace and defense behemoths like General Dynamics Corporation ( GD - Analyst Report ) and Lockheed Martin Corporation ( LMT - Analyst Report ) .