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Boeing (BA) Expands in ULCC Market, Wins Deal for 737 MAX Jet

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The Boeing Company (BA - Free Report) recently clinched an order for 50 737 MAX aircraft from Allegiant Air, an ultra-low-cost carrier (ULCC) airline operating in the United States. The deal marks Boeing’s entry into the growing ULCC market.

The order comprises two variants from Boeing’s 737 Max family of aircraft: the 737-7 and the high-capacity 737-8-200. Both variants offer the lowest seat-mile costs for a single-aisle aircraft and high-dispatch reliability that stands to fulfill Allegiant Air’s quest for capacity growth, bring flexibility in its operation and replace old aircraft from its existing fleet. Further, the deal involves an option for the addition of 50 more aircraft to its fleet going forward.

Significance of the 737-7 and 737-8-200 Aircraft

ULCC involves services that fulfill the purpose of operating with the lost-cost fleet, thus enabling airliners to provide customers with low-cost tickets. BA’s 737-7 and 737-8-200 aircraft offer operational cost benefits to airlines. These aircraft deliver superior efficiency, flexibility and reliability while reducing fuel use and carbon emissions by at least 14%.

Such enhanced features exhibit additional opportunities for Boeing to clinch orders for the 737-7 and 737-8-200 aircraft demand for ULCC rises.

Boeing’s Growth Prospects

The 737 Max family of aircraft remains a key catalyst for Boeing’s commercial business ramp-up. In the last reported quarter, the company delivered 66 737 Max family of aircraft compared with only three in the same period last year.

Moreover, since its return to operations following the Federal Aviation Administration approval, Boeing has delivered over 195 737 MAX aircraft, while airlines have returned more than 200 previously grounded aircraft to service. Currently, 31 airlines are operating the 737 MAX, thus highlighting the growing importance and adoption of the aircraft.

Per Boeing’s CMO, the requirement for aircraft by airlines globally is projected to be more than 43,000, valued at $7.2 trillion, over the next 20 years. Meanwhile, 19,000 aircraft, valued at $3.2 trillion, will be needed to meet the rising demand for the next 10 years. Such forecasts exemplify immense growth potential for Boeing in the commercial business segment.

Such projections will not only benefit Boeing but also aerospace majors, namely Airbus SE (EADSY - Free Report) , Embraer SA (ERJ - Free Report) and Textron (TXT - Free Report) .

The Airbus SE family of commercial aircraft comprises the A220 family, A320 family, A330 family and A350 family.

Airbus’ average earnings surprise for the last two quarters was 69.70%. EADSY stock has rallied 21.3% in the past year.

Embraer’s family of jets consists of the families of E-JETS E2, E-JETS and ERJs.  The company delivered nine commercial aircraft in the last reported quarter.

The long-term (three to five years) earnings growth rate of Embraer is pegged at 17%. It has a trailing four-quarter earnings surprise of 42.21%, on average. ERJ has returned a whopping 148.9% in the past year.

Another aerospace giant, Textron, recently announced the launch of a pair of its next-generation business jets, namely Cessna Citation M2 Gen2 and Cessna Citation XLS Gen2 at the National Business Aviation Association - Business Aviation Convention & Exhibition. Textron expects the delivery of jets to begin by the end of the first and second quarters of 2022.

Textron has delivered an earnings surprise of 13.33% in the last reported quarter. It has a trailing four-quarter earnings surprise of 27.89%, on average. The Zacks Consensus Estimate for 2022 earnings has been revised upward by 2% in the past 90 days. Shares of TXT have appreciated 56.4% in the past year.

Price Performance

Shares of Boeing have rallied 0.2% in the past year against the industry’s decline of 28.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.