Chicago-based aerospace and defense giant Boeing Co. on Wednesday said third-quarter profit totaled $1.2 billion, up 12 percent from a year earlier despite its problem-plagued 787 Dreamliner.

The results handily beat Wall Street expectations. Based on the good quarter, Boeing increased its profit expectations for the year.

Boeing reported core earnings, which excludes pension liability, of $1.80 per share, compared with an average Wall Street estimate of $1.55 per share. Revenue matched expectations, increasing 11 percent to $22.1 billion due to more deliveries of commercial airplanes to airlines.

Its order backlog increased to a record $415 billion, including $27 billion in new orders during the third quarter.

During the quarter, Boeing completed the first test flight of a stretched version of the 787 Dreamliner, called the 787-9. The company intends to increase the 787 production rate from 10 planes per month to 12 in 2016 and to 14 per month “before the end of the decade,” Boeing said. The first version of the 787 has been highly touted but problem-plagued. Because of production delays, its first delivery was more than three years late. And earlier this year, the model was grounded by aviation regulators worldwide after problems with overheating batteries. The Dreamliner has continued to exhibit minor glitches for airlines around the world. The only American airline to have the plane model so far is United Airlines.

Boeing CEO Jim McNerney said the plane model is seeing a relatively good 97 percent dispatch reliability rate, which has been improving. However, some customers aren’t seeing that level. “We’re not pleased yet,” McNerney said. “It’s on us to help them improve.” He said one area of concentration is improving the plane’s software, which is responsible for about one-third of the problems, mostly giving false warning messages.

Boeing’s commercial airplane business saw quarterly revenue increase to $14 billion, up 15 percent and with higher operating margins. McNerney said during a call with industry analysts Wednesday that airlines are replacing older airplanes with new ones that offer greater fuel efficiency, and airlines around the world are expanding fleets. However, the air cargo market “remains under pressure,” he said. As a result, Boeing will reduce the production rate for the 747-8 freighter.

“Overall, commercial aviation remains a very attractive near and long-term growth market,” McNerney said.

The defense business saw modest third-quarter revenue growth, from $7.8 billion last year to $8 billion, but slipping profit margins, from 10.5 percent to 8.4 percent. Uncertainty with government budgets, particularly in the U.S., are a concern, although Boeing’s “contingency plans we activated during the federal government shutdown were successful in minimizing the impact on our daily operations,” McNerney said. “Nevertheless, we are hopeful that the fiscal 2014 budget process will be resolved without further disruption in the weeks ahead.”

Based on the strong performance, Boeing raised its estimate for full-year 2013 earnings to $5.40 to $5.55 per share, up from a previous estimate of $5.10 to $5.30 per share.

Shares of Boeing have risen 65 percent in 2013 and were trading Wednesday at $127.69, up 4.3 percent, on the New York Stock Exchange.

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Photo Credit: Boeing's Dreamline Fiasco Doesn't Hurt as Third-Quarter Profits Rise. Robert Sorbo / Reuters