- September 5, 2011
Boeing CDS flying higher
Boeing credit default swaps are hovering at nearly 2-year highs closing in the 85 basis point range last week as investors express their concern over the continued delays in the company’s launch of its 787 Dreamliner jet – which is expected to begin deliveries by the end of the year. As highlighted in Bloomberg,
Boeing [stock] tumbled 42 percent from the first 787 delay in October 2007……
“The production delays have created a huge glut of inventory, bloating the balance sheet,” said Joel Levington, a managing director of corporate credit at Brookfield Investment Management Inc. in New York, which doesn’t own Boeing bonds. “It has been a large concern to us.”
Boeing is getting help in carrying the cost. It created a production system for the 787 using suppliers around the world to build most of the plane. They usually don’t get paid until Boeing does. Airlines generally pay about 60 percent of the price of a plane in installments leading up to its delivery…….
The Dreamliner is Boeing’s fastest-selling jet, racking up more than 800 orders before it even flew. The planes have an average catalog price of about $202 million, and Boeing plans to assemble 10 a month by 2013 — a record for wide-body jets.
The program has the potential to be the company’s most lucrative ever, say Barclays Plc analysts Joe Campbell and Carter Copeland.
The problem is that Boeing has probably spent $300 million to build each 787 and will realize revenue of as little as $50 million apiece for the early models, the analysts estimate.
The 45th plane to be built — in the factory now — will probably cost Boeing at least $184 million, Harned estimated after analyzing inventory figures. That would make the average cost over the first 1,000 jets, including a learning curve, at least $116 million per plane, he projects. FAA approval this week after a flight-test program that began in December 2009 would set the stage for delivery of the first 787 to All Nippon Airways Co. next month.