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Boeing investors wait for payoff

They'll be rewarded for staying loyal

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Investors who stood by Boeing during its 787 crisis have been rewarded.

Things looked bad three months ago. Boeing's flagship plane was grounded worldwide because no one could explain the smouldering batteries on two planes. Deliveries of the 787 to customers stopped. No one knew how much the mess would cost. Plus, there was a chance engineers could strike, halting production.

Some investors bailed out, spooked by the latest snag with a plane considered to be a key to Boeing's future. Others were confident Boeing Co. would quickly fix the battery problem and raved about its long-term prospects.

"Over time, when investors are terrified, you're usually going to be able to find some very good buying opportunities," said Don Peters, portfolio manager for T. Rowe Price's tax efficient equity fund.

On Friday, U.S. regulators approved Boeing's battery fix, clearing the way for the plane to fly again, although the timing remained uncertain. The shares rose two per cent to close at $87.96 Friday, and are now up almost 17 per cent for the year.

The stock has outpaced the gains that brought new record highs for the Dow Jones industrial average and the Standard & Poor's 500 index. Anyone who bought 100 Boeing shares at the January low of $73.65 is sitting on a gain of $1,431, or 19 per cent.

In January, T. Rowe Price analyst David Rowlett said Boeing's 787 problem was serious, but manageable.

He said the toughest part for Boeing with the 787 had been the years of production delays before the plane finally went into service in late 2011. At the time of the grounding, only 50 787s had been delivered, limiting any compensation owed to customers for the planes being of service.

"It's been a tough few years for this platform and for Boeing, but I feel like we're close to the finish line on the 787," Rowlett said. A bigger concern, he said, was that engineers would reject a contract offer and walk out. That could have stopped production of all Boeing planes. Instead, they approved a deal Feb. 19.

Long-term, Boeing has plenty going for it. There's growing demand from airlines for more planes to expand their operations or replace older planes with modern aircraft. The company has a steady stream of revenue locked in with a backlog of orders for almost 4,500 planes.

That includes 840 787s. The Dreamliner, as the 787 is known, is Boeing's first all-new airplane since the 777 in 1995. On the outside, it has an advanced carbon-fibre skin (instead of the usual aluminum). On the inside, it uses far more electricity than other airliners. That adds up to a plane that can save the airlines money on fuel, which is now their biggest cost.

As popular as it is, the 787 isn't Boeing's bestseller. The bulk of orders are for the 737, the world's most widely used aircraft. And the longer-range 777 is also selling well. Boeing is boosting production of both to catch up with orders.

It helps that Boeing faces only one serious competitor -- Airbus. Even with the 787's woes, the plane is ahead of Airbus' A350, which hasn't flown yet and won't be delivered until next year at the earliest.

Boeing still faces some issues. The final price tag for the 787 battery problem isn't known. The battery issue has strained relations with customers already frustrated by the 787's three-year delay in initial deliveries. And weak demand for its superjumbo 747-8 forced Boeing to slow production of that plane.

Still, some analysts think Boeing shares could top $100 -- and even top the high of $107.83 set in 2007. They've concluded Boeing shares are under-valued compared to its ability to generate cash.

Analysts expect the cash produced by Boeing's operations to rise to $8.5 billion in 2015 $7 billion this year, according to FactSet.

Investors will share in the bounty.


-- The Associated Press


Republished from the Winnipeg Free Press print edition April 22, 2013 B7

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