Boeing and Lion Air in Mega Deal - Analyst Blog

By Zacks Equity Research,

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Leading commercial airline maker Boeing Co. ( BA ) said it received a commitment for 201' 737 MAXs and 29' Next-Generation 737-900 ERs (extended range) from Indonesia based Lion Air. This agreement has the potential for an additional order of 150' 737 airplanes.

Lion Air is the largest private airline operator in Indonesia and has been successfully operating a fleet of Next Generation 737s. The company placed its first order to Boeing on June 30, 2005 for 30' 737-900 ERs. Till date the airline has ordered 178 airplanes to Boeing.

The mega deal fortifies the business relationship between these two companies. The deal can go up to 380 airplanes with the order value touching $35.7 billion if ordered at list prices. However, historically it has been a practice for commercial airplane manufacturers to give discounts on listed prices in bulk orders.

The initial commitment for 230 airplanes will cost $21.7 billion at list price. This deal once finalized will be the largest commercial airplanes order for Boeing.

The 737 MAX is built on the very successful Next-Generation 737 platform and has CFM International LEAP 1-B engines, which will result in a fuel efficiency of 10-12% compared to other single-aisle airplanes, providing operators with a cost advantage.  The 737 family continues to be the best selling model for Boeing with net orders for 317 airplanes as of November 16, 2011.

November is unfurling to be a good time for commercial airplane makers. Earlier this month, Boeing's peer, Airbus secured an order worth $6.5 billion for five A380 superjumbos and 50 A320 neo jets from Qatar Airways.

We believe the big deals signed by the airplane manufacturers are a sure indicator of a revival in the economy and resultant growth in global air traffic. The operators are signing large orders to fortify their fleet with the latest fuel-efficient airplanes to meet the surge in global demand.

Chicago-based Boeing Co. has a Zacks #3 Rank, which translates into a short-term Hold rating. The company competes with the likes of General Dynamics Corp. ( GD ), Lockheed Martin Corporation ( LMT ) and Northrop Grumman Corporation ( NOC ) in various niches.

BOEING CO ( BA ): Free Stock Analysis Report
GENL DYNAMICS ( GD ): Free Stock Analysis Report
LOCKHEED MARTIN ( LMT ): Free Stock Analysis Report
NORTHROP GRUMMN ( NOC ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: BA , GD , LMT , NOC

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