The Economic Reality Behind Boeing's New Plane

The aviation industry exists in an intensely competitive market which possesses many threats and challenges for not only airlines but aircraft manufacturers. Such an industry has contributed the economies of many countries and serves as a global hub for the transition of business all while incorporating new and innovative means of travel. The airline industry has altered the way in which people live, and how business are conducted. The mass amount of aircraft making up the airline industry can be contributed to many aircraft manufacturing companies. One of which is the Boeing Company which changed the way how the aviation industry views  technology by introducing more modernized means of transportation which caters to the traveling public and exemplifies what luxury is like within the skies.

Just recently, President Trump visited the inaugural celebration for Boeing’s 787 Dream liner series. The new model series has said to be the most economical where it can transport a larger number of passengers long range without refueling. In the past, the launch of the 787 programmed has been a problematic and economic woe for Boeing. The aircraft suffered a series of challenges from cracked wings, on-board battery fire and humidity. The staggering size of their accumulated losses for the Boeing 787 has projected to be more than 10 billion within two years (Seattle Times, 2015). In fact the company has spent over 25 million on each jet (Seattle-times, 2015). Despite the high cost and low return on investment. Boeing executives reassured stakeholders that they will receive a high percentage on their investments. While Boeing executive team continues to remain optimistic about the future for their 787 program, critics are saying otherwise. Boeing has estimated that the product will be a good cash flow for the company.

The catalog price for such a model is estimated to be $306 million (Washington post, 2017). Boeing is estimating that they will receive over $30 million per plane whereas financial analyst are predicting $16 million. Such an estimate for Boeing stems from their R&D efforts in analyzing market trends, air traffic demand and airline preference. The 787 is indeed a great technological advance plane but with low cost of fuel and more airlines opting for much larger long range models, the demand is not as high. In fact, Boeing is now planning to increase production from 10 to 14 a month to overcome the high percentage of backlog orders. However, given the economical sensitivity in most markets, the company should anticipate any volatile changes that can affect its demand.

Additionally, fierce competition from Airbus (European Aircraft Manufacturer) has forced Boeing to consistently revise its production plan and carefully assess its financial risk. Failure to lose market share to Airbus can greatly hinder Boeing’s financial state especially as it demands drop. With hopes of increasing its earnings, Boeing’s stock has risen up to nearly 40% from last year which ultimately provides a strong and positive sentiment for investors surrounding the stock (Investors, 2017). If Boeing continues to meet the backlog of orders and increase its production rate, they will continue to boast a strong earning. While their 787 model is still being looked at as an optimistic product, the company must continue to keep operational cost at a minimum and strategically invests in other areas when necessary. 


Reference: Ehrenfreund, M. (2017, February 17). Analysis | The economic reality behind the Boeing plane Trump showed off. Retrieved April 13, 2017, from https://www.washingtonpost.com/news/wonk/wp/2017/02/17/the-economic-reality-behind-the-boeing-plane-trump-showed-off/?utm_term=.05374ba679f6
Gates, D. (2015, October 20). Will 787 program ever show an overall profit? Analysts grow more skeptical. Retrieved April 15, 2017, from http://www.seattletimes.com/business/boeing-aerospace/will-787-program-ever-show-an-overall-profit-analysts-grow-more-skeptical/
Hoy, L. (2017, April 24). Just Buy Boeing Co (BA) Stock Ahead of Earnings. Retrieved April 16, 2017, from http://investorplace.com/2017/04/just-buy-boeing-co-ba-stock-ahead-of-earnings/#.WQAgstLyvIU


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