Boeing Valueline Outlook

Some investors are concerned about the effect of the surging price of oil on demand for Boeing’s airliners. As a result, when petroleum’s price soared $10.75 on June 6th, this stock’s price dropped $4.15, or 5.4%. We don’t take the surge lightly, since the weight of higher prices
for this key commodity seems likely to broaden the economic slump and widen airline losses. In fact, there have already been a few airliner-order postponements and cancellations for both Boeing and Airbus Industrie, its European competitor. Even so, a countervailing factor is that aircraft now on order are more efficient than current fuel guzzlers. And much of the company’s huge backlog is from foreign airlines, many of which are backed by their governments. As a result, we haven’t cut our share-earnings estimates, and continue to look for big gains in both 2008 and 2009.

There is a huge backlog for the 787 Dreamliner, which is still under development. At the end of May, management cited firm orders for 896 airliners from 58 customers. Boeing, relying on outside contractors for many components, had numerous production problems that resulted in
rescheduling deliveries three times. In early May, however, a company spokeswoman said there have been no further delays. Accordingly, the first delivery is scheduled for the third quarter of 2009, with the average delay figured by Boeing at 20 months. Currently, the company anticipates a production rate of 10 a month in 2012. This would seem to mean that any
cancellation would quickly be filled in by waiting customers, since at the 12-amonth rate, the backlog amounts to 7.5 years of production.

Boeing’s finances are very strong. Its ‘‘Cash Flow’’ in excess of current needs has permitted it to raise its dividend regularly, steadily pay down debt, and retire its common stock at a good pace.
This stock retains above-average capital gains potential over the 3- to 5- year pull. We assume good gains for worldwide demand for its commercial aircraft for years to come. And if the USAF’s decision not to award a new flying tanker contract to Boeing is overturned, our
projections would probably be enhanced.

Morton L. Siegel June 20, 2008