This Company Improves on a Major Weakness
Aircraft maker Boeing (NYS: BA) has always been blessed with orders; too often many more than the company could handle. However, its inefficient production capacity proved to be a constant letdown -- leading to a pile-up and subsequent delays in order fulfillment. This has hurt the company's image badly in recent times. But now, Boeing seems to have done something about it.
The aircraft maker reported an impressive 32% increase in the delivery of its commercial aircraft in the first quarter of 2012, indicating a marked improvement in its production capacity. For the first time in over a decade, Boeing's delivery of 137 commercial aircrafts exceeded industry rival Airbus' delivery of 131 commercial airliners during the same period.
The significant progress in its delivery cycle should translate into faster revenue generation for the company. Boeing gets paid only on delivery of ordered aircrafts, which means that a faster turnaround time would ensure a more robust top line for the company.
What's brewing at Boeing?
Although Boeing does seem to be one step ahead of Airbus in the race for deliveries, it's sure to be a fight to the finish between the two plane makers. Both Boeing and Airbus focused on their best-selling medium-haul models -- Boeing's 737 and Airbus' A320. Boeing was able to cope successfully with increased demand from emerging markets and produced 99 737s in the first quarter as compared to 87 during the prior-year period, which translates into more than one 737 delivered per day. Boeing also opened up a new line of production to ramp up delivery of its fuel-efficient 787 aircraft and rolled out five 787s during the quarter.
Although there was a jump in the company's military aircraft production as well, it is clearly targeting the commercial aircraft market, thanks to the Pentagon's recent budget cuts. Boeing probably has learned a lesson from rival Lockheed Martin (NYS: LMT) , which had a recent setback when the Defense Department postponed orders for the company's F35 aircraft. But, then again, Boeing's diversification into the commercial airliner segment gives it a clear advantage over defense-centric Lockheed. At the same time, thriving demand for commercial aircraft globally, particularly from emerging countries such as India, China, and Indonesia, proved encouraging enough for Boeing to ramp up its commercial aircraft production.
Clearing backlog along with on-track operations
Boeing's order book for the commercial aircraft segment has always been full. Consider this -- in 2009 Boeing booked merely 142 commercial airplane orders, while new orders in 2011 totaled a whopping 805. And, if you take a look at the total backlog, the number is huge. At the end of 2011, Boeing's commercial order book had over 3,700 pending orders worth a staggering $296 billion.
Now, if the company continued to operate at its earlier production pace, a good number of these deals had a chance of being cancelled. In order to cope with the huge backlog, Boeing has set itself a lofty production target of 585 to 600 commercial aircraft in 2012, which a lot of analysts found to be overly optimistic. However, if Boeing can slightly increase the current pace of production, then it looks set to achieve this target.
The Foolish bottom line
Boeing has taken a significant leap to overcome a significant weakness. I think this move will help boost its performance in the future. But, it should also remember that Airbus will continue to be a formidable foe; it has reported a 10% rise in deliveries as well during the same period. I'm keeping a close eye on the developments surrounding Boeing, and if you want to do the same, add Boeing to your Free Watchlist.
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At the time this article was published Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.