The Boeing Co. (BA - Free Report) has received an order to supply 40 737 MAX 8 airplanes to Jeju Air. These new aircrafts will help the Korea-based low cost airline to expand its operation and meet the rising demand from customers. The agreement also includes purchase rights for another 10 737 MAX 8 airplanes.
The total value of the 40 airplanes will be $5.9 billion at list prices. We expect Jeju Air to get a discount on the list prices, as Boeing has historically offered discounts on bulk orders. Jeju Air already has 40 Next-Generation 737-800s, and these new aircrafts will help the company to further expand its domestic and international operations.
At present, total backlog of Boeing is 5,803 airplanes, out of which nearly 79.5% is for the 737 model.
Reasons Behind Rising Demand for 737 Max
Boeing 737 MAX is a premier aircraft from Boeing’s stable, and sees brisk demand in the single-aisle market for its fuel efficiency and low carbon dioxide emissions. Powered by the Commercial Fan Motor (“CFM”) International LEAP-1B engines, the Advanced Technology winglet of this airplane enhances its performance.
Additionally, the pivoting overhead stowage bins add to the spaciousness of the cabin. The bins give passengers more room to keep a carry-on roll-aboard near their own seat, in addition to providing extra leg space. This aircraft is 14% more fuel efficient than its closest peer in the single-aisle aircraft market.
At present, Boeing produces 52 737 airplanes per month and has plans to expand production volumes to 57 per month in 2019. The total backlog of the 737 is 4,616 airplanes. The current production rate depicts the willingness of the carriers to wait for a high-quality airplane for upgrading their existing fleet.
Outlook for Commercial Airplane
The demand for commercial airplanes is expected to double in the next two decades, per long-term outlook provided by Boeing. Per the outlook, the demand for new planes will touch 42,730 by 2037. The single aisle segment is expected to witness maximum growth, with a demand of 31,360 airplanes.
The total value of the commercial aeroplane market, with commercial airplanes and services, will touch nearly $15 trillion. We expect that Boeing will be a major player with its 737 family, a premier single-aisle commercial aeroplane.
Boeing’s dominance in the international commercial market will be challenged by Airbus SE Group’s A-320 model.
In a year’s time, Boeing has returned 20.2% compared with its industry’s growth of 3.3%.
Zacks Rank & Other Key Picks
Boeing currently has a Zacks Rank #2 (Buy). Other top-ranked stocks from the same industry include Lockheed Martin Corporation (LMT - Free Report) and Engility Holdings, Inc. , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lockheed Martin delivered average positive surprise of 13.92% in the last four quarters and its long-term earnings growth is pegged at 8.0%. The Zacks Consensus Estimate for 2018 has moved up 2.9% in the past 60 days to $17.51 per share.
Engility Holdings delivered average positive surprise of 19.98% in the last four quarters and its long-term earnings growth is pegged at 5.0%. The Zacks Consensus Estimate for 2018 has moved up 4% in the past 60 days to $2.10 per share.
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