The Boeing Company (BA) Doubles Down on the Dreamliner

Boeing is expected to eventually offer an updated 777 (the 777X ), but it already has a hit on its hands with the Dreamliner. Moreover, while the 787-9 already competes with the smallest variant of the A350 (the -800), roughly two-thirds of Airbus’ A350 orders are for the larger -900 model. With the new 787-10 slotting into this market segment, it’s no wonder that Boeing’s management thinks the company’s Dreamliner backlog could grow by 60%.

Charging ahead
The Boeing Company (NYSE:BA)’s initial order book for the 787-10 is worth nearly $30 billion at list prices (although airlines typically receive discounts of 30%-50%), and more orders are sure to follow in the coming months. One of the great aspects of Boeing as an investment is that it has a guaranteed long-term revenue stream due to its massive order backlog.

However, the company’s success will ultimately be determined by its cost performance. The Dreamliner still costs significantly more to produce than its average selling price, according to Forbes. As Boeing continues to streamline the production process and increase the production rate, costs will come down, but it’s still unclear when the plane will reach breakeven.

Investors should be very happy about Boeing from a revenue perspective. The company has a strong order book and will undoubtedly add many more planes to its backlog as it steps up its marketing of the new 787-10. However, that will only contribute to the bottom line if Boeing can rapidly reduce its production costs. For that reason, investors should be cautious as Boeing stock approaches its all-time high from 2007.

The article Boeing Doubles Down on the Dreamliner originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings Inc (NYSE:UAL) and is long Sept. 2013 $33 puts on United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned.

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