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The initial evaluation of Airbus' announcement Monday of a production delay for its new A400M military plane was that it will not immediately affect the outlook for Boeing (NYSE: BA). It does, however, raise concerns about potential production delays in other Airbus programs, including commercial jetliners, stemming from resource diversion.Shares of Airbus's parent EADS plunged 1.17 euros to 21.72 Monday after Airbus announced that production delays for the A400M, which is designed to carry about 120 paratroops and 2 military helicopters, will add about 1.4 billion euros, or $2 billion, to the program's cost. Analysts now expect Airbus to deliver its first A400M in 2010, about a year late.
Moreover, while Airbus' commercial and military projects are time-line distinct, the A400M delay could impact Airbus' civilian A350 commercial jetliner, which competes with Boeing's 787 Dreamliner, Citigroup global Markets Analyst David Perry told Bloomberg News. The biggest concern "is that the delays and technical problems on the A400M mean that vital engineering and research and development resources will be diverted from new civil programs until at least 2010,'' Perry said.
Boeing's shares gained 5 cents to $97.81 in Monday afternoon trading. The First Call mean rating for Boeing is Buy (15 firms). The mean 2007 target is $111.30.
Boeing has 710 orders for the 787 Dreamliner, a substantial lead over Airbus's 196 orders for the A350. However, Boeing lost some momentum on October 11 when it announced a six-month roll-out delay for the 787, shortening Boeing's roll-out advantage window. Boeing is still expected to deliver its first 787 about 4½ years before the first A350 is delivered. Airbus's A400M announcement -- and its potential to further delay the A350 via engineering and research resource diversion -- could lengthen Boeing's roll-out window, and possibly prompt Airbus clients to shift orders to Boeing.
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