Boeing Clipped By Qantas 787 Cancellations

Boeing Co. got roughed up Thursday after Qantas Airways Ltd. said it can't afford to buy all the new 787 Dreamliners it had initially ordered.

The news sent Boeing shares 2.5 percent lower, making the company the second-biggest decliner on the Dow Jones Industrial Average.

Market overreaction? Maybe. But the biggest Dreamliner cancellation to date raises concerns the U.S. aerospace giant can't simply brush off.

Qantas, facing what many in the industry call a unique set of challenges, canceled orders for 35 of Boeing's new 787-9s a move it claims will save about $8.5 billion. The announcement accompanied the Australian national airline's full-year report. Having posted an annual loss for the first time in 17 years, it makes perfect sense for Qantas to take steps to stop the bleeding.

But does it make sense for investors to dump Boeing stock over the loss of a 35-plane order? After all, the company still has more than 800 787s on its order book. Also, as Boeing proudly points out, the Dreamliner is still the most successful commercial-aircraft launch ever.

There's another side to the story.

Fuel costs are a major cause of Qantas's financial problems. Jet-fuel prices are high and headed higher. Since June, spot jet-fuel prices have surged nearly 24 percent. That's not hitting just Qantas; it's hitting all the airlines.

Because Qantas is based in faraway Australia, though, and because it recently has added so many long-haul routes around the world, it is feeling the pinch of rising fuel costs more than most airlines. In some ways, that makes it the canary in the air shaft.

There are other concerns. Qantas Chief Executive Alan Joyce, summing up the past year's results, said the airline also faces “lower growth requirements in this uncertain global context.”

Just about any airline executive could say that with equal conviction. Europe's economy has stumbled badly, China's growth engine has slowed and currency markets are in turmoil. All this makes the future very murky. Add rising fuel prices to the mix, and it's easy to see why some investors saw the Qantas announcement as a good excuse to lighten up their Boeing holdings.

While many of Qantas's problems are indeed unique, enough are common to the entire industry to suspect they foreshadow a troubling trend.

The latest airline-industry data don't support that view. Global airline traffic and load factors are both up this year. However, a few more cancellations and Boeing's ambitious 787 program, still trying to make up for costly launch delays, means the company might have to trim its profit forecast.

That would not set well with Wall Street.