Aerospace and defense operator
The Boeing Co.
) received an order to supply 16' 737 MAX airplanes to
IcelandAir. The initial order for 12 aircrafts was received in
Dec 2012, which has been increased to 16 now. The agreement also
includes purchase rights for another eight 737 MAXs.
The total value of the 16 airplanes will be $1.6 billion at list
prices. We expect IcelandAir to get a discount on list prices as
Boeing has historically offered discounts on bulk
The bulging 737 MAX order book, which presently stands at 1,180
airplanes, will definitely offer a breather for this airplane
manufacturer given the continued uncertainty over its Dreamliner
787 model. To cope with piling order, Boeing decided to increase
its production rate of 737 MAX from the current 38 airplanes a
month to 42 airplanes a month in 2014.
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 also enhances
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 besides providing
extra leg space. This aircraft is 13% more fuel efficient than
its closest peer in the single-aisle aircraft market.
Despite a strong showing from 737 MAX, Boeing's commercial
aircraft division continues to face problems with its 787
Dreamliner. To begin with there were delays with the first 787
aircraft delivery. On Jan 16 this year all 787 Dreamliners were
grounded worldwide after battery-related incidents. A parked 787
at the Logan International Airport in Boston caught fire while
there was an in-flight incident on another 787 in Japan forcing
an emergency landing. Boeing is investigating the cause of
Boeing is yet to resolve its Dreamliner 787 battery problem
though it continues to manufacture the model. However, supply of
the same to its customers has been halted. We believe unless the
company succeeds to solve the battery issue margins would come
under pressure and eventually the company might find it difficult
to meet its 2013 delivery target of 60' 787 airplanes.
Boeing completed 2012 with a strong backlog of 4,400 airplanes
valued at $319 billion. 737 MAX and the jinxed 787 model will
play a pivotal role for the company in achieving its 2013
commercial revenue target which is in the range of $51 billion to
Boeing currently retains a Zacks Rank #3 (Hold). We presently
prefer other operators in the aerospace and defense sector,
Huntington Ingalls Industries
Lockheed Martin Corporation
Rockwell Collins Inc.
), all carrying a Zacks Rank #2 (Buy).
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