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The Boeing Company ( BA - Analyst Report ) has been awarded a contract by Virgin Australia to deliver 23 units of 737 MAX airplanes. This agreement also constitutes an option to supply four additional 737 MAX airplanes to the client in the future.
The 737 MAX is Boeing's newest family of airplanes comprising 737 MAX 7, 737 MAX 8 and 737 MAX 9. Equipped with the new-engine variant powered by Commercial Fan Motor (“CFM”) International LEAP-1B engines, the 737 MAX is high on fuel efficiency and low on carbon dioxide emissions. The use of Advanced Technology winglet also enhances its performance. The interior of the airplanes comprise pivoting overhead stowage bins, which add to the spaciousness of the cabin. The bins give passengers more room to keep a carry-on roll-aboard near their own seat apart from providing additional leg space. The 737 MAX 8 is expected to incur lowest operating costs in the single-aisle category.
The 737 MAX has a high demand in the single-aisle market. This is primarily attributable to expansion of air services in India, China Indonesia and several other emerging nations and the popularity of the low-cost carriers (“LCC”) business model around the globe. In February 2012, Boeing received an order, worth 22.4 billion at list prices, from Indonesia-based Lion Air to supply 201 units of 737 MAXs and 29 units of Next-Generation 737-900ERs.
We view The Boeing Company as a well-positioned organization with solid cash balance of $6.7 billion as of March 31, 2012. The company recently released its 2012 current market outlook. It estimates the market for new commercial airplanes to be worth $4.5 trillion over the next 20 years.
Boeing expects single-aisle airplanes to act as a positive catalyst for future demand growth, accounting for about 68% of estimated worldwide airplane deliveries from 2012 to 2031 and approximately 45% of the total value of the deliveries. This is apparent from the current worldwide demand for 23,240 Boeing single-aisle jets worth roughly $2 trillion.
In addition, Boeing’s growth projection is based on several factors, which include strong demand for fleet addition and replacement, a strong commercial aviation market and recovery witnessed in world economies.
But at the same time, we are skeptical about U.S. defense budget cutbacks, which might negatively impact the company’s top and bottom-line numbers.
Headquartered in Chicago, Boeing Company is a premier jet aircraft manufacturer and one of the largest defense contractors in the U.S.
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