Boeing's Bad News Bears

This seems to be a great week for Boeing (NYSE: BA  ) bears.

On Tuesday, Air Berlin, a big buyer of Boeing's now back-on-track Dreamliner, announced that it's slashed its order book dramatically. Previously signed-up for 25 "firm" orders, the company is paring back to just 15 planes. AB also halved its number of "options" on additional planes to just five.

Between the cancellation of firm orders and the reduction of options, this week's news subtracted $1.7 billion from Boeing's backlog, and could potentially reduce revenue by as much as $2.6 billion -- and the bad news doesn't end there. Air Berlin's also postponing nine firm orders for 737 aircraft by several years.

Don't blame us
As previously mentioned (ad nauseam), production of the 787 is more than two years overdue. Yet while customers like Delta (NYSE: DAL  ) , AMR (NYSE: AMR  ) and Continental (NYSE: CAL  ) politely await delivery, not everyone's so patient. Cancellations have eaten up 10% of Boeing's 787 order book. It's tempting to blame the AB cancellations on Boeing's delays, but this time it seems Boeing's innocent. As with the Quantas cancellations we saw last year, Air Berlin cited "market conditions" as the cause of this cancellation.

Meanwhile, back on the ranch
In contrast, Boeing has only itself to blame for its other bad news this week. The U.S. Department of Homeland Security announced this week that it's calling a halt to further work on the "Virtual Fence" (aka SBINet) along the U.S.-Mexico Border pending review of the project. You, I, and the rest of American taxpayers have already sunk $672 million into this particular Boeing-led boondoggle (major subcontractors include Unisys (NYSE: UIS  ) , L-3 Communications (NYSE: LLL  ) , and Dell (Nasdaq: DELL  ) ).

Yet according to Sen. John McCain, all it has bought us so far is "a complete failure" -- hundreds of miles of planned fence yet to be built, and that which has been built apparently can't tell an illegal immigrant from a fidgety cactus.

Time to sell Boeing?
Yet despite this bad news, Boeing's stock has gone nowhere but up this week. Is this a chance for shareholders to "get while the getting's good?" Is it an opportunity to short the stock while Mr. Market's not looking? Or could it be that Boeing's already so darn cheap that we should buy it regardless of the bad news?

You tell me, preferably in the comments section below.

Aerospace stocks have lagged the market badly over the past year. How do you tell a bargain stock from a value trap? Find out here.

Fool contributor Rich Smith has no interests, short or long, in any company named above. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 18, 2010, at 7:17 PM, GarryGR wrote:

    Well, "market analysts" are no help, that's for sure! Consider the analyst recommendation to sell Boeing at 29, and then the same analyst "upgrading" Boeing after it has more than doubled in price; now there’s some “good” timing, NOT; great expert advice, huh. :( Pity those who owned Boeing at 29 and sold it! The NASDAQ Analyst Research shows 7 Strong Buy, 5 Buy, 12 Hold, 3 Underperform, & 1 Sell. 12 Month Price Target Range Consensus is 65, ranging from 47 to 82. Obviously, we’re on our own; no help there!

  • Report this Comment On March 18, 2010, at 7:46 PM, jonashad wrote:

    Interesting that our intrepid reporter has lerned that AMR and Delta have placed orders and are awaiting delivery of 787s. Boeing will be anxious to learn from said reporter how they managed to overook these orders, as they are unaware of them.

  • Report this Comment On March 21, 2010, at 11:04 AM, jrusso9722 wrote:

    Farnborough will see a new groundswell of attention to those two Big, Beautiful, Boeing Birds: 787 & 747-8. "Shorting" is for junior varsity only. Have the Vision to see promise and performance of Boeing

  • Report this Comment On March 24, 2010, at 2:42 AM, FBEditorial wrote:

    No mention of the news on March 19 of the wide and narrowbody production increase on the back of demand for earlier deliveries.

    Big deal if Air Berlin deferred/cancelled orders, they are not Boeings only customer.

    Typical of this column to be bearish while the bulls are out to play, but of course, anything that constitutes good news for Boeing is clearly not welcome here.

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