Aircraft giant The Boeing Company (BA - Free Report) has entered into an agreement for 125 737 MAX 8 airplanes. The contract, which is valued at $14 billion at list prices, has been signed with an unidentified major airline customer at the 2017 Paris Air Show.
Details of the Deal
The agreement also includes purchase rights for an additional 50 airplanes. If finalized, this agreement will be reflected on the Boeing orders and deliveries website.
Notably, Boeing’s 737 MAX family of commercial aircraft incorporates the latest-technology CFM International LEAP-1B engines to deliver the highest efficiency, reliability and passenger comfort in the single-aisle market. In particular, these jets boast a 40% smaller noise footprint than today's single-aisle airplanes.
Other Deals Signed at the Ongoing Paris Air Show
Demand for Boeing’s commercial airplanes has been on the rise owing to a steady increase in passenger and freight traffic. In addition to the aforementioned deal, Boeing grabbed other notable contracts at the Paris Air Show, including a commitment from the Kuwait-based ALAFCO Aviation Lease and Finance Company for 20 737 MAX 8s, valued at $2.2 billion at current list prices. Moreover, Lion Group committed to buy 50 737 Max 10 jets from the company for $6.24 billion.
Further, the aerospace behemoth signed a memorandum of understanding (MOU) with SpiceJet for 40 737 MAX airplanes, valued at $4.7 billion. Another MOU was signed with Tibet Financial Leasing for 20 737 MAX airplanes, valued at approximately $2.5 billion. It also signed MOU with BOC Aviation Limited for 10 737 MAX 10 airplanes, worth nearly $1.25 billion.
Apart from this, the company clinched an order from AerCap for 30 787-9 Dreamliners, worth $8.1 billion. Given the enormous commercial demand in the market, Boeing is expected to witness significant traction, especially in the single-aisle market.
Single-Aisle Aircraft in Demand
Over the next 20 years, Boeing anticipates demand for 29,530 single-aisle jets, worth $3.2 trillion, in the next 20 years. This projected figure reflects a 5% increase over last year's projection.
Moreover, Boeing expects single-aisle jets to be the major driver of demand growth, comprising 72% of the total commercial jets’ demand projection. While the new 737 MAX is likely to grab a lion’s share of the new orders, Boeing’s arch-rival Airbus Group SE’s A320neo is also expected to pose a significant challenge.
Nevertheless, Boeing’s 737 model is one of the best-selling planes in the single-aisle market, thanks primarily to its fuel efficiency and passenger comfort. Therefore, to maintain its dominance in the commercial aerospace market, the company continues to invest in research and development for upgrading and churning out upgraded versions of its existing planes.
Q1 Order Details
A look at Boeing’s first-quarter order details shows that the company booked 198 net commercial orders (accounting for cancellations). This reflects a decline from the year-ago figure of 768. On the contrary, Airbus registered net bookings of just six aircraft, trailing far behind Boeing.
Since, Boeing and Airbus are the two largest players in the commercial aircraft space their direct rivalry is quite evident, which leads to intensifying competition in the industry. The enhanced orders place Boeing in a better position in the industry.
Share price of Boeing has increased 49.4% over the last 12 months, outperforming the Zacks categorized Aerospace–Defense industry’s gain of 27.4%. This could be because the company’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases as well as earnings accretive acquisitions. Furthermore, the stock’s performance is in line with that of General Dynamics Corp. (GD - Free Report) and Textron Inc. (TXT - Free Report) , which also surpassed the industry mark.
Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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