Is It Good, or Bad, to be Boeing Right Now?

On the surface, the phrase ‘sitting pretty’ doesn’t even seem to be adequate as a way of categorizing The Boeing Company (NYS:BA) right now. There’s always more to the story though. Is BA really the no-brainer ‘buy’ the market wants to believe it is?

The wind is at its back: It’s not hard to win a horse race if you’re the only horse in the race. That’s precisely why Boeing investors are thrilled Northrop Grumman Inc. (NYSE:NOC) dropped out of the bidding process to win a Pentagon contract expected to be a deal worth at least $35 to $40 billion over the next ten years, give or take.

The U.S. military is looking to replace its aging fleet of tanker aircraft with 179 new ones; Boeing’s 767 design just happens to be a well-suited platform for aerial tankers. And, considering Boeing’s the only remaining bidder in the contest, it’s a good thing the Pentagon thinks the converted 767’s can do the job.

Moreover, the company has continued to make pre-sales of its 787 Dreamliner as well as sell planes currently in production. UAL Corporation (NASDAQ:UAUA), for instance, has committed to at least 25 Dreamliners, worth a total of $4.2 billion. More 787 orders may be on the way too, now that the plane is actually in the air.

Lurking threats: Though Boeing sold $68 billion worth of planes and aerospace hardware last year (a typical year), there are two realities potential or current investors need to understand.

The first is, military contracts are hardly ‘easy money’. And, considering the grief the Pentagon has already received for allegedly squeezing all but one player out of the tanker bidding, investors can count on perfection being demanded from Boeing’s tankers at the agreed-upon price…. even if it costs Boeing far more than anticipated.

Second, though the 787 Dreamliner is now in test flights and deliveries should begin in the foreseeable future, delays in mass production of the new passenger jet – and the distraction they caused - have allowed Boeing’s competition to step in, and prompted some customers to cancel their orders from Boeing.

And who is the new competition? Canada’s Bombardier and Brazil’s Embraer (NYSE:ERJ) – two manufacturers that would have never competed in the large jetliner space ten years ago, but have found lots of interest in the new-world economy where smaller and fuel-efficient jets are valued.

Boeing shouldn’t shrug either company off… Embraer just delivered a handful of planes to British Airways, which up until now had been a fan of Boeing’s planes.

Bottom line: Despite more pitfalls than strategic advantages, BA isn’t a net liability right now… but it’s not a screaming, can’t-lose ‘buy’ either.

Though the tanker contract is pretty much a done deal, it’s small relative to the company’s total revenue. And, while the 787 is drawing interest, three years of delays and a very soft air travel market have muted the plane’s initial excitement while allowing new competition materialize.

Whether it’s bad timing or bad luck is irrelevant at this point. Until air traffic really starts to pick up enough for more airlines to justify 787 purchases (UAL Corp. badly needed new planes anyway), outlooks for Boeing may be overestimated.