Back to top

Image: Bigstock

Boeing (BA) Set to Gain a B737-800 Order from Jeju Air

Read MoreHide Full Article

The Boeing Co. (BA - Free Report) is set to clinch an order from South Korea's Jeju Air for its B737-800 planes.

South Korea's largest low-cost carrier, Jeju Air, plans to buy three B737-800 planes from Boeing for $291 million (317 billion won) by Oct 2018, to guarantee stable supplies.

The carrier is set to diversify its portfolio by entering into the hotel business and have its own aircraft to generate a new revenue stream in the wake of intense competition among local budget airlines. As per a regulatory filing, Jeju Air will spend $54.9 million to build a high-rise hotel near Hongik University in Seoul, a famous tourist destination. Construction is expected to be complete by 2018.

The latest move by Jeju Air comes close on the heels of a launch by the country's sixth low-cost carrier Air Seoul. This intensifies competition in the market where Jeju Air has been enjoying a dominant position over the past several years.

Boeing 737-800

737-800 is a member of the Next-Generation 737 family which is extremely popular as a single-aisle aircraft, courtesy its advanced technology and low operation and maintenance costs.

A Look at Boeing’s Q2 Performance

Although Boeing managed to beat Street expectations, it reported a loss in the second quarter owing to three significant charges. Meanwhile, higher shipments of the 777 and 787 wide bodies drove a modest increase in the commercial airplanes unit, more than offsetting a revenue decline in Boeing's defense business. Boeing cut its profit outlook for 2016 to reflect the impact of the 787 R&D reclassification and the 747 and tanker charges, while reaffirming the revenue guidance.

Notably, deliveries of its single-aisle 737, its most popular plane, slipped to 127 in the second quarter from 128 a year ago.

Projections

Boeing anticipates the commercial fleet to double to 45,240 airplanes by the end of 2035, backed by 4.8% annual growth in commercial passenger traffic. For that, the world will need 39,620 new planes, worth $5.9 trillion, between 2016 and 2035, per Boeing’s current market estimations.

The company expects single-aisle jets to be the major growth driver, making up for 71% of the projection. This translates into worldwide demand for 28,140 single-aisle jets, worth $3.0 trillion, over the next 20 years. The new Boeing 737 MAX 8 and the current 737-800 will be major growth catalysts.

Zacks Rank & Key Picks

Boeing currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the defense space include Ducommun Inc. (DCO - Free Report) , General Dynamics Corp. (GD - Free Report) and Aerojet Rocketdyne Holdings, Inc. . While Ducommun sports a Zacks Rank #1 (Strong Buy), General Dynamics and Aerojet Rocketdyne hold a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


The Boeing Company (BA) - free report >>

General Dynamics Corporation (GD) - free report >>

Ducommun Incorporated (DCO) - free report >>

Published in