No one would question that the past year has been trying for Boeing (NYSE: BA). The aerospace giant essentially turned in a loss for 2003 before one-time gains and adjustments. Scandals prompted the departure of top executives and put a lucrative deal with the Air Force in limbo, where it remains today.
Perhaps most troubling, however, were accusations that the firm's innovative engineering culture was under siege, and that, strategically, Boeing had lost its way. The cancellation of its Sonic Cruiser program, for example, reportedly damaged the company's reputation with airlines. In the meantime, rival Airbus, a unit of the European Aeronautic Defense and Space Company, overtook Boeing to become the world's largest commercial airplane manufacturer.
There are signs, though, that slowly -- almost imperceptibly -- the tide is turning. The future of its commercial airplane business, staked on the 7E7 Dreamliner, appears to align engineering savvy with smart management. From an engineering standpoint, the 7E7 promises to usher in a number of innovations. Final assembly will take just three days, compared to 15 to 18 days for other models. Through widespread use of composite materials, the 200 to 250-seat 7E7 will consume 20% less fuel and travel 2,000 miles farther than the plane it's replacing, the 767. As a result, the new plane's range will be comparable to the much larger 777.
In terms of management strategy, the 7E7 answers a lot of market demands. The rise of discount carriers such as Southwest Airlines (NYSE: LUV), JetBlue (Nasdaq: JBLU), and AirTran (NYSE: AAI) shows that keeping costs low is critical to success in the airline industry. Prospective customers reportedly have been pleasantly surprised by the 7E7's proposed $120 million price tag, which would make it comparable to versions of the less-capable 767. Given the bite jet fuel takes out of airline profits, the aircraft's efficiency is also undoubtedly a strong selling point. Finally, more composites in its frame means the plane likely will be less prone to corrosion, possibly lowering maintenance costs. With all these savings, the 7E7 promises to allow cut-rate carriers to extend their onslaught against traditional airlines into longer-distance markets.
Unfortunately, investors will have to be patient if they hope to see any returns from the 7E7. The first model is not scheduled for delivery until 2008, and that's only if the company receives enough orders to justify production. Boeing only began soliciting this year, and initial interest in the aircraft at least seems strong. The News Tribune reported recently that an American carrier is eyeing the 7E7, and that Boeing believes it will have enough orders to move forward "sooner rather than later."
For now, Boeing will have to wrestle with its current demons, especially the Air Force tanker deal. If the company can't salvage that agreement, it will be in for a rough ride in the near term. But if investors can make it through the turbulence, there may be sunny skies ahead.
Tom Gardner's scouring the skies for the next Southwest in his
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Fool contributor Brian Gorman is a freelance writer in Chicago, Ill. He does not own shares of any companies mentioned in this article.
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