The Boeing Company (BA - Analyst Report) and GE Capital Aviation Services, or GECAS, the commercial aircraft leasing and financing arm of General Electric Company (GE - Analyst Report), finalized a firm order for 85 737s, which includes 75 737 MAX 8s and 10 Next-Generation 737-800s. The order allows for up to 15 additional 737-800s. The order is worth $6 billion at list prices.
With this order, GECAS has ordered 580 airplanes directly from Boeing since 1995, which includes 737s, 747s, 757s, 767s and 777s. To date, GECAS has taken delivery of 433 of the airplanes.
GECAS, the U.S. and Irish commercial aircraft financing and leasing business of GE, has a fleet of over 1,710 owned and serviced aircraft with approximately 235 airlines in over 75 countries. GECAS offers a wide range of aircraft types and financing options, including operating leases and secured debt financing, and also provides productivity solutions including spare engine leasing, spare parts financing and management. GECAS, a unit of GE Capital, has offices in 24 cities around the world.
Boeing enjoys a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and is also one of the largest aerospace and defense contractors. Besides, its revenues are spread across more than 90 countries around the globe.
Looking forward, Boeing in its 2012 Current Market Outlook estimates a $4.5 trillion market for 34,000 new commercial airplanes over the next 20 years. Boeing’s projection of growth is based on the strength of the commercial aviation market, recovery witnessed in world economies and strong demand for fleet addition and replacement. Airline traffic is forecast to grow at a 5% annual rate over the next two decades, with cargo traffic projected to grow at an annual rate of 5.2%.
Inspired by such strong projections, Boeing recently raised its full-year 2012 earnings per share guidance to a range of $4.40–$4.60 versus its earlier guidance range of $4.15–$4.35. The company’s revenue guidance for 2012 is in the range of $79.5–$81.5 billion versus the earlier range of $78.0–$80.0 billion. Commercial Airplanes' 2012 deliveries are expected to be between 585 and 600 airplanes, which are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes' 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margin hovering around 9.0%.
In the defense space, however, the threat of cutbacks will loom over the company going forward. Overall, Boeing expects defense revenue for 2012 to be between $31.5 billion and $32.0 billion with operating margin greater than 9%.
Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths, General Dynamics Corporation (GD - Analyst Report) and L-3 Communications Holdings Inc. (LLL - Analyst Report).