It's been years overdue, but Boeing's (NYSE: BA ) 787 Dreamliner has finally entered production. All Nippon Airways has its first next-gen jet, and hundreds more are in the queue. It's not the only company that can breathe a sigh of relief now that the backlog of 821 787s (try saying that quickly) can be whittled down. Boeing's increased interest in outsourcing brought many specialized aviation companies under its wing, and they could be be far better poised to profit than the primary plane producer.
A million little pieces of an airplane
Even if they reach their production goal of 10 Dreamliners a month, Boeing will take years to work through its existing backlog. The company still expects market demand of 3,310 of the aircraft from here till 2028. For its suppliers, this will be a major boon, especially for those that already derive a significant portion of their revenues from commercial aircraft:
Revenue From Aviation*
Potential Increase in 2013 Revenue**
|Spirit AeroSystems (NYSE: SPR )||Flight deck, fuselage, engine pylons, leading edges||100%||$28.3 billion||$754.2 million|
|Rockwell Collins (NYSE: COL )||Displays and communications||39%||$1.1 billion||$142.7 million|
|Esterline (NYSE: ESL )||Flight-deck control panels||40%||$1.1 billion||Uncertain|
|Goodrich (NYSE: GR )||Fuel indicators, nacelles, sensors, brakes, lighting, cargo handling||64%||$2.8 billion^||$781.8 million|
|Moog (NYSE: MOG-A )||Flight-control actuators||36%||$567 million||$38.5 million|
Sources: SEC filings and Boeing partner list.
*Used commercial aviation segments where available; otherwise used relevant component segments.
**All numbers are author's estimates of 787 contributions to revenue over anticipated 2011 revenue, based on information available in each company's 2010 annual reports, and are not exact figures.
^This figure represents "definitive purchase contracts" and does not include an unobligated backlog of $10.9 billion.B/E Aerospace (Nasdaq: BEAV) isn't listed on Boeing's partner list, but it's likely to be providing in-flight food and beverage management solutions to Boeing's airline customers. There's sure to be demand for B/E's plush first-class and business-class seating, an important upsell on intercontinental flights.
These estimated increases are compelling, especially for Spirit, which could increase its 2013 revenue by 18% with full production. Goodrich could see 11% more revenue in 2013 than it did in 2010 from its work on the Dreamliner. Based on Esterline's close similarities to Rockwell's figures, and its similar supplier role, it wouldn't surprise me if it stood to gain similar revenue in 2013. Unfortunately, it was the only supplier that couldn't offer an estimate on the value of its work for Boeing. There's no such thing as a priceless relationship, so I hope it can provide clearer figures next year.
What to watch for
The companies with the most riding on the 787's success should count their blessings, as they can expect a steady flow of revenue for at least a decade. Rockwell Collins and Esterline may find their relationship with Boeing a useful backstop against government austerity, as both companies generate substantial revenue from government contracts. Boeing itself must contend with lost profit from its delays and could wind up benefiting less than its partners from maxing out its production capacity.
If you've bet on the success of the Dreamliner, you'll breathe a sigh of relief to know that it's finally cleared for takeoff. Keep tabs on Boeing and its partners as they fill the skies with Dreamliners by adding them to your Watchlist. It's the best way to keep up to date on important events surrounding your favorite stocks.