Can Boeing Afford More Delays? (BA, GE, ERJ, LMT, NOC, UTX, GR)

Patience in a funny thing. Everybody wants a job to be done right, but they also want it done on a timescale that at least approximates the original estimates. Customers appreciate that Boeing (NYSE:BA) is attempting to do something quite extraordinary with the 787 Dreamliner project, but if the company cannot ever deliver the plane, who cares how amazing it is?

More to the point - is Boeing running the risk of giving unintentional aid and comfort to emerging rivals? Should investors worry that Boeing's scale and technical expertise may all go for naught because the company was too ambitious and customers ultimately settle for lesser planes that rivals can actually deliver?

More Problems ... AgainBoeing has had no shortage of problems with this new 787 plane. Problems with the Rolls Royce engine (one of the two available; the other being offered by General Electric (NYSE:GE)) got a lot of attention, and now Boeing has suspended test flights after an onboard electrical fire. While the company has not formerly altered the expected initiation of deliveries in the middle of the first quarter of 2011, the Dreamliner is already three years behind schedule and more delays seem more likely than not.

Of course, these delays need to be kept in perspective. There has never been a plane quite like the Dreamliner, and the scale of the engineering challenges are enormous. On top of that, these planes may spend well more than 30 years in service and it is clearly important to get everything right ahead of time.

But Patience is Wearing ThinAlthough some of Boeing's customers have been patient, others have become more vocal about their dissatisfaction. In an interview with BBC, Qatar Airways' CEO Akbar Al Baker claimed that the Dreamliner has "clearly failed" as a result of these delays, and that it was somehow a reflection on the company's pride in its quality. Given that Qatar Airways has ordered at least 30 of these planes, these complaints are not trivial.

An Opening for the Competition?Ever since EADS's Airbus went into production, customers have had the option to play Boeing against EADS, and vice versa. In this case, however, customers may find that they do not have a lot of near-term options. The Airbus A350 and A350-1000 likely will not be ready until 2013 and 2015, respectively, so delays on the 787 and 747-8 will not lead to immediate order changes unless the buyers want to wait even longer.

That said, disappointments and dissatisfaction with Boeing could be an opening for others. Bombardier is looking to break into the market for larger planes with its C-Series, and China's COMAC likewise has designs on breaking the commercial aerospace duopoly. If that was not enough, Russian aircraft companies Tupolev, Mikoyan, Ilyushin, Irkut, Sukhoi and Yakovlev have been merged into a single company called United Aircraft Corporation (majority-owned by the Russian Government) with a stated goal of becoming a global player in military and commercial aircraft.

On top of all that, it is fair to wonder whether Boeing has enough eyes to follow all of the balls it has in the air. If not, count on Embraer (NYSE:ERJ), Lockheed (NYSE:LMT), Northrop (NYSE:NOC) and United Technologies (NYSE:UTX) to take advantage of any Boeing neglect in their respective market niches.

It's Not Just About BoeingIf Boeing has in fact opened the door to rivals, there is an entire food-chain that may see unexpected impacts. Goodrich (NYSE:GR), for instance, is balanced between Boeing and Airbus as customers, but could be somewhat vulnerable to gains by COMAC. On the other hand, a company like Spirit Aerosystems (NYSE:SPR) gets 85% of its revenue from Boeing and clearly needs that company to succeed.

The Bottom LineAll in all, history suggests that the Dreamliner will be a success and if the plane delivers the sort of efficiency, performance and cost advantages that Boeing is projecting, customers likely will not be too grumpy about the delays. Of course, that assumes that they can actually get the planes in their own hangars and realize some of these advantages before giving up and moving on to Boeing's rivals.

By Stephen Simpson
Stephen Simpson, CFA, is a freelance financial writer, investor, and consultant. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog, and can be reached there.