Airbus and its parent European Aeronautic Defense and Space Co. NV (OTC: EADSY.PK) reported today that the aircraft maker booked just 11 new orders in April — and those orders were taken for the A350, a plane comparable to the 777 from Boeing Co. (NYSE: BA). The A380 is Airbus’s late competitor to the Boeing 747.

The latest contract cancellation for seven A350s came from Abu Dhabi’s state-owned airlines Etihad. Full deliveries of the aircraft were to begin in 2014, but the schedule has been delayed and Etihad was not scheduled to receive the planes until 2017. No reason was given for the cancellation, but the recent problems with the A380 cannot have fostered confidence in the company.

Orders for new planes at both Airbus and Boeing are soft so far this year. Airbus claims net new orders for the first four months of 2012 of 112 planes. Boeing claims net new orders of 415 planes so far in 2012. All but two of Boeing’s new orders are for the venerable 737. Boeing’s new plane, the 787 Dreamliner, has a negative net total new orders so far this year.

Paul Ausick

The company’s revenues from commercial aircraft sales jumped 54% to $10.94 billion and sales of military aircraft rose 27% to $4.3 billion. It’s interesting to contrast Boeing’s military business with other military contractors like General Dynamics Corp. (NYSE: GD) and Northrop Grumman Corp. (NYSE: NOC), both of which also reported earnings today. Lockheed Martin Corp. (NYSE: LMT) and Raytheon Corp. (NYSE: RTN) are scheduled to report earnings tomorrow.

Boeing’s defense and space business posted an operating margin of 9% in the first quarter, about 10% lower than its operating margin in the company’s commercial aircraft business. But the margin growth was only 0.2% year-over-year in defense, compared with margin growth of 2.7% in the commercial business.

Boeing also lifted its full-year EPS forecast from $4.05-$4.25 to a new range of $4.15-$4.35.

General Dynamics, which makes tanks and combat vehicles, reported that sales in its combat systems group fell -2.3%. Northrop reported that sales in its aerospace group, which manufactures drones, fell -8% and profits fell -2.7%. Northrop’s electronics group posted a gain in profits even as sales fell.

The proposed cut of $490 billion in US defense spending over the next 10 years will certainly have a larger impact on General Dynamics and Northrop than it will on Boeing. Still today’s report from the US Census Bureau on durable goods orders is not too encouraging for Boeing either. Of a decline of $7.7 billion in new orders for aircraft and parts, some $7.1 billion of the drop came in non-defense orders (our coverage here).

The backlog of orders for non-defense aircraft is up 15.6% compared with March 2011 and the defense backlog is up 5.6%. But those backlogs are likely to shrink as new orders, especially for non-commercial aircraft, are filled.

Lockheed is expected to post EPS of $1.70 on revenue of $10.56 billion tomorrow. Raytheon, also scheduled to report earnings tomorrow, is slated to post EPS of $1.16 on revenue of $5.77 billion. For both the EPS estimate is lower than year-ago actuals, while the revenue estimates are higher.

Boeing’s shares are up 4.3% in the first half-hour of trading this morning at $76.36 in a 52-week range of $56.01-$80.65.

General Dynamics’ shares are down -1.3% at $69.12 in a 52-week range of $53.95-$75.93.

Northrop’s shares are up 2.3% at $64.18 in a 52-week range of $49.20-$70.61.
Shares of Lockheed are up 0.5% at $91.60 after posting a new 52-week high of $91.79, and shares of Raytheon are up 0.9% at $53.47 after another new 52-week high of $53.56.

Paul Ausick

Boeing reported that it delivered 5 of its newest planes, the 787 Dreamliner, in the first quarter of this year. The company also shipped 30 military aircraft in the quarter and a total of 3 satellites.

Boeing stock is down -0.12% at $73.58 in a 52-week range of $56.01-$80.65.

Boeing’s delays are part of a series of problems. Much of its fleet of 737s had to be inspected for weaknesses in infrastructure. The 787 finally has been released, but it has trouble with structural problems in the tails of the planes. The problems are worse at Airbus, for the time being. Its new super jumbo A380 has shown cracks in its wings. The entire fleet will undergo inspection.

Production delays and manufacturing weaknesses ultimately must be blamed on senior management at the two companies. They set manufacturing cycles and safety test programs. Boeing and Airbus are among the world’s largest manufacturers. Each has the financial and expertise capacity to release products on time, or nearly on time, without major flaws. Ultimately, the aircraft were released too quickly due to profit concerns. Several more rounds of tests or delayed production to ensure safety would have resulted in billions of dollars in additional costs and delayed deliveries.

Each of the companies will face several billions of dollars in unforeseen expenses. These costs will not be because the planes were released late due to safety concerns. They will be because the planes were rushed to market too early.

Douglas A. McIntyre

Boeing’s forecast is for large planes like those made by it and competitor Airbus. The value of the aircraft delivered over the next 20 years is $4 trillion, according the U.S. firm. Boeing’s revenue last year was $69 billion, which is not up much from $66.4 billion in 2007. So, the level of growth that the aerospace company predicts is essential to its financial future.

Most of the growth that Boeing expects will be in Asia, which makes sense based on population and GDP growth. The 33,5000 forecast assumes that 11,450 large aircraft will be delivered in the Asia-Pacific region before 2030. The prediction is not 11,400 or 11,500. It is 11,450 on the dot.

It is as impossible to argue against Boeing’s numbers as it is to argue for them. They may not be precisely right, but Boeing should be in a position to make predictions if any company or economist is. However, a drop in gross domestic product of a fraction of a point here and there across Asia would make the prediction wrong on the downside. Sales in North America, Europe and other developing or developed parts around the world will not make up for that, particularly because Asia has become so much of the world’s total GDP.

Boeing management might as well keep their predictions to themselves. People may have flying cars in 2030, or the global economy may be such that very few people are flying at all.

Douglas A. McIntyre

Boeing (NYSE: BA) says there are six million parts in its largest plane, the 747-400. Half of these are fasteners. The aircraft has 171 miles of wiring. It is a wonder the plane flies safely at all.

Problems with large airplane engineering can be divided into two categories. There are those that probably pose very little threat to the ability of the plane to fly, and those that could cause a catastrophe that pilots or mechanics cannot overcome. The wing cracks in the A380 almost certainly fall into the first group, but no one knows that for certain.

Products like the A380 take years to develop. Something as obvious as wing cracks should not happen in new planes. Much older models have been known to develop mechanical problems after a plane has been in service for 20 or 30 years. That may be unacceptable to fliers, airlines and regulators, but at least it is understandable.

The A380 is one of the most complex aircraft ever built. That is not an excuse for why one of the world’s most advanced manufacturing companies cannot get the design of the wings right.

Douglas A. McIntyre

Boeing delivered 477 aircraft last year. The Airbus figure is expected to be 10% to 20% higher.

Airbus holds a lead that is likely to keep it in the top spot for some time. According to Reuters, “Boeing’s order total of 805 comes in second to Airbus’ order tally, which stood at 1,378 net orders at the end of November.”

It is impossible to know how many airlines turned away from Boeing as a source for mid-sized long-range airplanes when the Dreamliner was delayed several times, and for as long as five years. Certainly the history of the plane will be viewed as one of the great debacles in recent U.S. corporate history. Boeing broke enough promises about the delivery schedule that many of the world’s largest airlines are certain to be skeptical about delivery timetables for future Boeing products.

Boeing’s next challenges include more than delivery problems with the Dreamliner. The company has made a mistake in not replacing the aged 747. It has updated the old plane, but not enough to attract many new customers. Airbus’s 380 super jumbo is the large long-range plane of the future. The aircraft has had some quality problems of its own, but they likely are not substantial enough to delay the delivery dates for the aircraft.

Boeing made a series of mistakes with the 787, and it will not recover from them for years.

Douglas A. McIntyre

In the age of austerity and military budgets being slashed to deal with deficits, Iran has a chance of turning 2012 accidentally into the year of defense stocks. Alliant Techsystems Inc. (NYSE: ATK), General Dynamics Corp. (NYSE: GD), L-3 Communications Holdings Inc. (NYSE: LLL), Lockheed Martin Corporation (NYSE: LMT) and Raytheon Co. (NYSE: RTN) could all hang in the balance. With operations all but gone in Iraq and with the trend in Afghanistan being one of leaving, Iran is the obvious wild card.

If anything real ever comes out of Iran’s religious political leadership other than how neat it is to stone people over adultery, how it denies that alternative lifestyles exist in Iran, or about how it wants nuclear power for peace, this may end up making the sell-off seen in defense stocks a bargain of the century. If (or when) Iran ever announces that it has built a nuclear bomb, it likely is going to be difficult for Western nations to slash and burn too far on the defense spending. Before running out and loading up on warfare stocks, please remember … this is all “If, Then.”

Alliant Techsystems Inc. (NYSE: ATK) trades at $56.15 and the 52-week trading range is $51.26 to $78.17. Thomson Reuters has a consensus price target of $71.70, implying upside of roughly 28%. Alliant Tech currently has a lower dividend yield against peers with only a payout rate of about 1.4% and shares are up about 4% since the Thanksgiving break. Alliant is highly dependent on the business of selling bullets and it no longer has the booster-rocket business from Space Shuttle launches.

General Dynamics Corp. (NYSE: GD) trades at $66.15 and the 52-week trading range is $53.95 to $78.27. Thomson Reuters has a consensus price target of $76.16, implying upside of about 15%. General Dynamics currently yields about 2.9%.

L-3 Communications Holdings Inc. (NYSE: LLL) trades at $66.85 and the 52-week trading range is $58.30 to $88.55. Thomson Reuters has a consensus price target of $71.64, implying upside of only about 7%. L-3 yields about 2.7% in its dividend and shares are up about 5% from the Thanksgiving break.

Lockheed Martin Corp. (NYSE: LMT) trades at $81.25 and the 52-week trading range is $66.36 to $82.43. Thomson Reuters has a consensus price target of $80.12, implying that the stock is above a full-value price. Its dividend yield is quite high at about 5% and shares are up almost 5% since its $1.00 dividend was reflected in the stock in late November.

Raytheon Co. (NYSE: RTN) trades at $48.50 and the 52-week trading range is $38.35 to $53.12. Thomson Reuters has a consensus price target of $49.53, implying upside of only about 2%. Its dividend yield is currently about 3.7% and shares are up about 14% since the Thanksgiving break.

Unless something new comes out of North Korea, or unless there is more unrest in the Middle East, Iran is the big worry for the country today. With such high payouts from some defense contractors, it is worth wondering just how high some of the payouts can rise during the proliferation of austerity.

JON C. OGG