Bracing For a Hard Landing

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It's been billed as a game changer. The excitement it generated was widespread and palpable. But Boeing’s (NYSE: BA) launch of its new Dreamliner 787, 3 ½ years behind schedule, has been rocky at best.

The new souped-up plane, built right here in the good-old USA, first sailed into the wild blue yonder in October 2011. The cutting-edge aircraft features weight-saving carbon-fiber composite materials and two fuel efficient engines. The fresh, sophisticated design is suppose to make the monster jet capable of flying almost any global route non-stop, soaring over long stretches of azure oceans and cold, isolated arctic regions.

But a bevy of problems are plaguing the Dreamliner. While not exactly a nightmare for Boeing, the complications have surely caused Boeing's execs to experience a few sleepless nights. The electrical issues, fuel leaks, and myriad malfunctions that have resulted in operational problems and emergency landings over the last few months have many aviation, government, and industry officials questioning the Dreamliner’s reliability and safety.

In 2012, Boeing delivered 46 Dreamliners, and it is expected to deliver some 80 plus more this year. However, should the National Transportation Board and the Federal Aviation Administration deem that the planes harbor safety issues and prolong the grounding of planes, delivery could be seriously stalled and Boeing's revenues could sorely suffer.  Furthermore, purchasers of the plane just may postpone delivery.

Boeing executives are also probably tossing and turning over the political wrangling going on up on Capitol Hill. You see, Boeing’s defense business accounts for more than 40% of the Chicago-based company’s sales.

Should the scary sequestration come to fruition, and the threatening, steep government spending cuts kick-in, Boeing shares could get clipped. While severe military spending cuts are not likely, some cuts are expected. And you never know just how long or how hard Democrats and Republicans will duke it out before some kind of agreement is reached. The uncertainty alone is enough rattle Boeing's stock. 

In addition, commercial sales look ready to park in neutral for a while. As UBS pointed out, commercial plane sales have been robust over the past few years, fueled by rock bottom financials and the longing for more energy efficient planes. But that goosed demand for planes well beyond the number needed by current and projected air traffic growth.

Futhermore, Boeing also faces some competition. Rival Airbus, a subsidiary of Netherlands based EADS (NASDAQOTH: EADSF), is preparing  to debut its upcoming twin-deck A380XWB, made largely of composite material. The new model will directly compete with Boeing's Dreamliner.

Airbus Military's unit also poses a threat to Boeing. This division provides a wide range of aircraft to various global governments, not under the same sequestration as the U.S. military, for a wide range of missions.  For instance, Airbus is currently in contract talks with Indian Air Force for orders. Plus, it just took an order for 25 wide-body aircraft from Singapore Airlines. In addition, Turkish Airlines is mulling buying about 150 Airbus SAS aircraft.

As Airbus logs new orders, Boeing is losing them. Romanian low-cost airline Blue Air recently canceled an order for five Boeing 737 planes, citing financial problems. The contract was worth $462.2 million to Boeing.

Lockheed Martin (NYSE: LMT) competes with Boeing on the military side. It recently cinched a $104 million GPS government contract and attained approval from the U.S. Air Force for production on its sniper advanced targeting pod.

Lockeed also just completed work on a Navy satellite that currently sits in storage until its launch date in July of this year. While the company has steady work right now from our armed forces, that could quickly change. With steep budget cuts still looming up on Capitol Hill, Lockheed Martin looks like an iffy bet at best until the government spending issue is resolved. Right now, approach Lockheed Martin with caution, if at all.

Meanwhile, with FAA and NTSB investigations looming over Boeing for the near term, shares could continue to lose altitude. Market participants may be better off waiting until Boeing gets the all-clear for takeoff on the Dreamliner, or at least until after the company reports Q4 earnings on Jan. 30 (before the market opens).

For now, Boeing shares are flying through some turbulence and may be heading for a hard landing.

DianeAlter has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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