Friday, July 25, 2014

Can Boeing Increase Margins This Year?

One of the key considerations for Boeing investors in 2014 is whether the aerospace giant can increase operating margins on its commercial airplanes. Already this year, suppliers such as Spirit AeroSystems and Triumph Group have faced issues on different Boeing programs, and the increasing complexity of newer planes appears to be causing Boeing some production problems, too. All of this could contribute to cost overruns. It's time to look closer at some of these issues.

Boeing, Spirit AeroSystems, and Triumph Group
The company's full-year 2014 operating profit margin guidance of around 10% for its Boeing commercial airplanes, or BCA, segment looks a little conservative in light of the first-quarter result of 11.8%. As such, Boeing appears to have substantive opportunity to beat internal guidance, but it won't be plain sailing for a few reasons.

Fools already know that Boeing is still on track to ramp up production of the 787 Dreamliner to a rate of 10 a month in 2014. However, Boeing has had production issues with the 787, including the discovery of hairline cracks on the wings of some planes in production.

Moreover, two suppliers have also had issues on Boeing programs. Earlier, in the year, Triumph Group saw its costs increase due to internal quality issues that required replacement of some parts on the 747-8 -- a relatively new aircraft that Boeing has had difficulty selling. The aircraft maker only received 17 gross orders for its 747 planes in 2013, and it only has one order in the year to date. Boeing made two production rate cuts on the 747-8 last year.