Boeing (BA) 787-10 Ready For Next Phase, Final Assembly On

The Boeing Company (NYSE:BA) has recently commenced the final assembly of the first 787-10 Dreamliner jet – the third and largest member of the Dreamliner family – at the company’s North Charleston, SC facility. This marks the company’s entry into the next phase of the development of the 787-10, with the aircraft’s first flight date scheduled for 2017.

Final assembly will be considered over once all major sections are joined, interior and exterior components completed, power turned on and production tests begun.

A Brief Note on the 787

Boeing’s 787 Dreamliner holds a distinguished position in the lucrative long-range passenger jet market. When it comes to innovation, efficiency, comfort as well as environmental awareness to create the ultimate flying experience, the 787 Dreamliner can be regarded as one of the most advanced commercial jets in the world.

The 787 family continues to evolve with the latest versions being 787-9 and 787-10. Note that the 787-10 can fly up to 6,430 nautical miles (or 11,910 kilometers), which is more than 90% of twin-aisle routes. Moreover, the airplane uses 25% less fuel per seat than any other similarly sized aircraft. The cabin accommodates 330 passengers in the typical two-class seating arrangement.

In a marked improvement over its predecessor, the 787-10 will retain 95% commonality, despite increasing the seating and cargo capacity, thus setting a new benchmark for fuel efficiency and operating economics in the aviation industry.

In Mar 2016, the company started the major assembly of its first 787-10 model. This was followed by the initiation of mid-body integration of the aircraft model in October. To date, Boeing has received orders for 154 787-10 from nine customers.

Our View

Beginning of the final assembly of the 787-10 model is a major milestone for Boeing. Moreover, it offers increased assurance that the company will most probably start flight testing of the jet by 2017, as per its previously announced estimates. Going forward, if the company succeeds in making timely deliveries (as expected in 2018), it will be able to witness a significant increase in revenues from the commercial product line.

Notably, over the next two decades, Boeing expects the global commercial fleet to double to 45,240 airplanes by the end of 2035, backed by sustained 4.8% annual growth in commercial passenger traffic. For that, the world will need 39,620 new planes, worth $5.9 trillion, between 2016 and 2035, per Boeing’s latest market outlook. This is 4.1% above last year's projected demand of 38,050 jets, worth $5.6 trillion, for the 2015–2034 period.

Market availability of Boeing’s 787-10 is expected to improve significantly by 2018 while its other commercial jets continue to enjoy robust demand. Armed with such a strong portfolio of jets, we believe Boeing will be able to benefit from the expected surge in demand.

However, the 787 Dreamliner's deferred production cost remains a cause of concern for Boeing. Although the company is witnessing a decline in deferred costs, it hasn’t been able to completely waive off these expenses. Probably, that’s why, Boeing has gained 6.6% on a year-to-date basis, underperforming the Zacks categorized Aerospace-Defense industry’s 14.05% gain. The company has also put up a weak show in comparison to other major players in the same space like Northrop Grumman Corp (NYSE:NOC) , L-3 Communications Holdings, Inc. (NYSE:LLL) and Lockheed Martin Corp (NYSE:LMT) , all of which outperformed the industry.

Zacks Rank

Boeing currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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