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Boeing, American Airlines Ink $12B Deal for 47 Dreamliners

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The Boeing Company (BA - Free Report) recently secured a contract to deliver 47 787-Dreamliner aircrafts to American Airlines, the world’s largest airline. Per the terms, the airline will recieve 22 787-8 and 25 787-9 Dreamliners from Boeing to expand and modernize its fleet.

This deal is expected to open new routes for American Airlines across the globe, including Europe and Asia Pacific region. The deal is valued at more than $12 billion at current list prices and will make the airline Boeing’s largest 787-Dreamliner customers in Western Hemisphere.

A Brief Note on Boeing 787

Boeing’s 787 is the fleet of fastest selling twin-aisle jet till date. The aircraft is built with lightweight composite materials and powered by advanced engines, which is 20% more fuel efficient than Boeing 767. The models of the 787 fleet involved in this deal are the 787-8 Dreamliner, equipped to fly 242 passengers up to 7,355 nautical miles, as well as 787-9, which can fly 290 passengers up to 7,635 nautical miles.

The 787 Dreamliner fleet contains Smooth Ride Technology, which allows it to sense turbulence and automatically adjust wing control surfaces for a smoother ride. Such sensors are located throughout the aircraft.

Boeing and American Airlines

With this deal, Boeing has strenghtened its relationship with American Airlines, its largest customer for more than 80 years. It currently delivers the 737 Max, Next Generation 737, 777 and 787 jets to the Seattle-based airline company. Boeing’s Global Services division provides American Airlines with efficient tools such as Airplane Health Management and Toolbox, which improves operational performanc and dispatch reliability.

What’s Ahead for Boeing?

Per Boeing’s latest market outlook, the world will need 41,030 new planes, worth $6.1 trillion, between 2017 and 2036. The company expects widebody jets to be a strong driver, comprising 20% of the total projection. This translates into worldwide demand for 8,210 widebody jets, worth $2.5 trillion, over the next 20 years.

Notably, with the 787 fleet leading the widebody jet space, Boeing has achieved more than 1350 orders for the same, till date. We may expect the company to win more similar orders in the quarters ahead. This in turn will add impetus to Boeing’s Commercial Airplanes unit, which posted revenues of $56.7 billion in 2017, improving 8% on a year-over-year basis. Meanwhile, it started the production rate of 787-Dreamliners at 12 per month in 2016 and plans to boost the rate to 14 per month by the end of the decade. We believe that the latest deal will enable the company to successfully achieve its targeted production rate ramp up.

Price Performance

Boeing’s shares have rallied about 83.7% in a year, compared with the broader industry’s gain of 44.7%. The outperformance was primarily led by the robust worldwide demand for its commercial aircraft and military jets.


Zacks Rank & Other Key Picks    

Boeing carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the same sector are Huntington Ingalls (HII - Free Report) , Curtiss-Wright Corporation (CW - Free Report) and Northrop Grumman Corporation (NOC - Free Report) . While Huntington Ingalls sports a Zacks Rank #1 (Strong Buy), Curtiss-Wright and Northrop Grumman carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings rose by $4.94 to $17.38 in the last 90 days.

Curtiss-Wright Corporation recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings improved by 60 cents to $5.79 in the last 90 days.

Northrop Grumman Corporation recorded an average positive earnings surprise of 16.17% in the last four quarters. The Zacks Consensus Estimate for 2018 grew by $1.73 to $15.25 in the last 90 days.

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