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Boeing Inks Deal to Deliver 50 737 Jets to Flyadeal for $5.9B

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The Boeing Company (BA - Free Report) recently announced that Flyadeal, a Saudi-based airline, has made commitments for ordering 30 737 MAX jets with options for 20 more in a deal, with an estimated value of $5.9 billion at list prices. The deal will come into existence once both the companies conclude the final terms and conditions along with a purchase agreement.

The agreement is in line with flyadeal’s latest rush to expand their carriers to meet the expanding domestic passenger demand and cater to the rising air transport services in the country

Boeing’s Prospect in Saudi Arabia

Due to the rising level of airborne passenger traffic, major airlines from all over the world, including Saudi-based airlines, are increasing their fleet size to meet rigorous customer demands at the domestic front. According to the General Authority of Civil Aviation (GACA), about 14 million passengers have traveled through the Saudi Arabia’s domestic airports on 147,000 flights in 2017. Evidently, the passenger traffic within the domestic circle is increasing at a rapid pace, providing Boeing with enormous opportunities to expand growth.

Our View

Flyadeal, which offers low cost flights within Saudi Arabia, has conducted an evaluation process for 50 narrow-body airplanes to support domestic growth and potential international expansion. The company that currently operates the new Airbus A320s plans on shifting to Boeing's 737 MAX for future expansion, as the latter carries 12 more passengers and provides 8% lower operating costs per seat. Such major decision taken by the company will not only enable Boeing to further expand its market in the Saudi region but also dealt a blow to the growth trajectory of its arch-rival, Airbus in the Saudi commercial airline market.

Per Boeing’s current market outlook, the world will need 42,730 new planes, worth $6.35 trillion, between 2018 and 2037. The company expects single-aisle jets to be the major driver behind demand growth, comprising 73.4% of the total projection. This translates into worldwide demand for 31.360 single-aisle jets, worth $3.48 trillion, over the next 20 years. Notably, with the 737 fleet leading the single-aisle jet space, we may expect Boeing to win more orders for this fleet in days ahead.

Price Performance

Shares of Boeing have gained about 1.5% in a year, against the industry’s decline of 13%. The outperformance was primarily led by significant demand for the company’s military jets across the globe along with robust long-term demand for its commercial aircraft.

Zacks Rank & Other Stocks to Consider

Boeing currently carries a Zacks Rank #2 (Buy).

A few top-ranked companies in the same sector are Aerojet Rocketdyne Holdings (AJRD - Free Report) , Teledyne Technologies Incorporated (TDY - Free Report) and Raytheon Company (RTN - Free Report) .

While Aerojet Rocketdyne and Teledyne Technologies sport a Zacks Rank #1 (Strong Buy), Raytheon carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with average positive earnings surprise of 19.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has increased 43.3% to $1.82 in the past 90 days.

Teledyne Technologies came up with average positive earnings surprise of 12.92% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has increased 6% to $8.75 in the past 90 days.

Raytheon delivered average positive earnings surprise of 6.71% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 1.8% to $10.10 in the past 90 days.

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