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A couple weeks back, we discussed a nightmare prediction from Morgan Stanley, concerning the fire that broke out aboard a 787 undergoing test flights in Texas. Opined MS, the fire was "bigger than a simple, single component failure." Potentially, it could necessitate redesigning the plane's whole electrical system -- a project that might delay deliveries to long-suffering customers including All-Nippon Airways, United Continental (NYSE: UAL ) , and AMR Corp (NYSE: AMR ) by as much as a year.
For now, Boeing is keeping mum on how a 787 redesign will affect its timeline. But Wall Street has no such compunctions. Already, they're laying bets on how big a disaster this will become -- taking the "under" on Morgan Stanley's prediction, and coming to a broad consensus that we're looking at about a six-month hiccup.
Still, JP Morgan warned yesterday that Boeing will have to carry higher levels of inventory (as undelivered planes stack up), increase interest expense (because building those planes cost money), and spend more on R&D (to work out a fix.) All of which adds up, in JP's view, to about a $0.30 reduction in fiscal 2011 per-share profit. RBC Capital concurs in part, dropping its estimate $0.10 -- but that's not the worst of it.
Looking at this from an investor's perspective, the worst news for Boeing shareholders is that both JP and RBC now expect earnings well below Wall Street's consensus number ($4.66 per share in 2011.) Given that these firms are now, along with Morgan Stanley and Goldman Sachs, the "first movers" walking back expectations, there's a very real risk other firms will follow their lead. In other words: Expect further estimates-reductions, and perhaps even full-blown analyst downgrades, in the coming weeks -- and not just for Boeing. Key 787 suppliers like Spirit AeroSystems (NYSE: SPR ) , Honeywell, and Precision Castparts (NYSE: PCP ) could all become recipients of negative "pin action" as the downgrades roll in.
Dark cloud, silver lining
But let's end this column on a bright note: If you've the patience and portfolio fortitude to wait out near-term fearmongering, JP predicts you'll be rewarded in 2012, when 787 deliveries skyrocket "as Boeing clears out excess inventory that built up prior to the first delivery."
Personally, that's my view as well. The more delays stack up ... the greater the pent-up demand for 787s. The lower the stock falls ... the cheaper it gets. And the more attractive for long-term investors.