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Sept. 26, 2011, 12:58 p.m. EDT

First Boeing 787 delivery a boost for parts makers

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By Christopher Hinton, MarketWatch

WASHINGTON (MarketWatch) — Boeing Co. is scheduled to deliver its premier 787 Dreamliner on Monday to All Nippon Airways — three years late, but with the potential to become the first of thousands of planes produced.

Though it may take years more for the Chicago-based manufacturer /zigman2/quotes/208579720/composite BA -3.81%  to recoup the costs of the Dreamliner’s development and declare it profitable, many of the companies that supply the 787 are anticipating a faster shot to earnings.


Boeing
Boeing delivers its first 787 Dreamliner to All Nippon Airways, after three years of delays.

“Part suppliers have better profit margins than the air framers and they had less development costs,” said Michael Lew, an aerospace analyst with Needham & Co.

“But the margins for suppliers are varying. Materials suppliers such as Hexcel have better margins as their product is usually manufactured for one-time use — that is, the life of the plane,” he added. “Whereas engine suppliers are more dependent on aftermarket and margins could be lower.”

The aftermarket includes the sales of maintenance and retrofitting services.

Hexcel Corp. /zigman2/quotes/209574944/composite HXL -4.99%  provides the 787 with composite materials being used on the window frames as well as some other components, valued at $1.5 million for each plane.

Other materials providers include Cytec Industries Inc. , LMI Aerospace Inc.  and Allegheny Technologies Inc. /zigman2/quotes/202946054/composite ATI -1.54%  Spirit AeroSystems Holdings Inc. /zigman2/quotes/205043289/composite SPR +0.92%  is building the plane’s nose cone and parts of the wing.

RTI International Metals Inc. , Titanium Metals Corp.  and Precision Castparts Corp.  provide additional materials in the form of fasteners and structural casings.

Engines for the 787 are provided by General Electric Co. /zigman2/quotes/208495069/composite GE -2.41%  and Rolls Royce PLC

/zigman2/quotes/208579720/composite BA 161.14, -6.39, -3.81%

Roughly 30% of the Dreamliner’s parts come from abroad.

Boeing intends to build 10 Dreamliners a month by the end of 2013, compared with two a month for now. The plane currently has a backlog of 821 orders, but the builder is expecting more than 3,300 total sales by 2028.

Share prices for aircraft suppliers have pulled back in the past three months as investors braced for a potential recession later this year that could lead to order cancellations. Shares of Boeing, for example, are off by nearly 14% in the past three months.

Industry watchers, however, remain optimistic that the demand for new, more fuel-efficient aircraft will more than outweigh any short-term concerns about economic growth.

Indeed, despite sky-high fuel prices and an anticipated drop in demand going into the fourth quarter, the airline industry still expects to be profitable in 2012, according to the International Air Transport Association.

“There is healthy demand for aircraft and that means decades of work,” said Needham’s Lew.

Underscoring that point was the United Technologies Corp.  buyout last week of Goodrich Corp. , which is poised to expand its aftermarket sales rapidly as the world’s fleet of commercial aircraft more than doubles over the next 20 years.

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Goodrich is responsible for about a dozen “critical” systems on the 787, including electrical braking and monitoring; nacelle housing covers for its engines; air-data sensors; and ice detectors.

Also with significant systems on the 787 are Honeywell International Inc. /zigman2/quotes/205583690/composite HON -0.96% , Rockwell Collins Inc. , Moog Inc. /zigman2/quotes/210100990/composite MOG.A +1.78% /zigman2/quotes/209198540/composite MOG.B +5.09% ,and Esterline Technologies Corp.

The 787 is a twin-aisle jetliner designed with lightweight composite materials, more efficient engines and less wiring and fewer fasteners to cut down on weight, resulting in a 20% lower fuel burn and greater flying distances.

After seven delays, the aircraft is about three years behind schedule after a series of mishaps in the program’s supply chain. Its closest rival, the Airbus A350, isn’t expected to have a maiden flight until the end of next year.

Airbus is a unit of Netherlands-based EADS   /zigman2/quotes/200706109/composite EADSY -3.76% .

/zigman2/quotes/208579720/composite
US : U.S.: NYSE
$ 161.14
-6.39 -3.81%
Volume: 22.06M
Sept. 18, 2020 4:00p
P/E Ratio
N/A
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0.00%
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$90.96 billion
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/zigman2/quotes/209574944/composite
US : U.S.: NYSE
$ 37.49
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US : U.S.: NYSE
$ 9.59
-0.15 -1.54%
Volume: 24.62M
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P/E Ratio
N/A
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N/A
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$1.21 billion
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/zigman2/quotes/205043289/composite
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$ 20.95
+0.19 +0.92%
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P/E Ratio
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0.19%
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/zigman2/quotes/208495069/composite
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$ 6.88
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0.58%
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$60.22 billion
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/zigman2/quotes/205583690/composite
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$ 168.70
-1.64 -0.96%
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Sept. 18, 2020 4:04p
P/E Ratio
20.76
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2.13%
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$118.39 billion
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/zigman2/quotes/210100990/composite
US : U.S.: NYSE
$ 66.36
+1.16 +1.78%
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P/E Ratio
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1.51%
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/zigman2/quotes/209198540/composite
US : U.S.: NYSE
$ 69.00
+3.34 +5.09%
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P/E Ratio
17.99
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1.45%
Market Cap
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$234,267
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/zigman2/quotes/200706109/composite
US : U.S.: OTC
$ 20.21
-0.79 -3.76%
Volume: 260,111
Sept. 18, 2020 3:59p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$63.76 billion
Rev. per Employee
$562,264
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Christopher Hinton is a reporter for MarketWatch based in New York.

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