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Boeing (BA) Wins Order for 39 Jets from Singapore Airlines

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As per media giants, Bloomberg and Reuters , leading commercial aircraft maker The Boeing CompanyBA has received an order for 39 wide-body airplanes from Singapore Airlines Ltd. According to Bloomberg , Singapore Airlines placed the order amid a battle with Chinese and Middle Eastern carriers.

Details of the Deal

Value of the airplanes at current list prices comes to nearly $13.8 billion. However, it goes without saying that the carrier, the biggest long-distance one in Southeast Asia, will surely enjoy a substantial discount on this amount.

As per sources, Singapore Airlines intends to purchase 20 long-range 777-9 jets, the latest model of Boeing's 777 with a seating capacity of 406. Notably, the choice was made over rival Airbus Group SE's EADSY plan to build a stretched version of the A350 aircraft by increasing the capacity to 400 seats, but ultimately delayed in taking a firm decision on the same. The carrier also intends to buy at least 19 787-10 jets, the longest Dreamliner model of Boeing.

Boeing expects to start the deliveries of these jets by the end of Mar 2021. Further, Singapore Airlines has options to buy six more of each of the two models, as per the terms of this agreement, as the carrier said to Bloomberg .

Reason for the Order

Singapore Airlines' profits have been declining since the last two quarters and therefore the carrier was under pressure to cut costs. As a result, it had been in search of fuel-efficient aircraft to replace aging Boeing models such as the 777-300ER. In fact, this initiative is expected to help in reducing its costs as well as give access to aircraft models that are not yet in the market.

Our View

Boeing is the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries. It is also one of the largest aerospace contractors and has revenue exposure spread across more than 90 countries around the globe. Additionally, demand for Boeing's commercial airplanes is on the rise owing to a steady improvement in passenger and freight traffic.

Overall, Boeing anticipates the commercial fleet to double over the next two decades to 45,240 airplanes by the end of 2035, backed by sustained 4.8% annual growth in commercial passenger traffic. According to its current market outlook, the world will need 39,620 new planes, worth $5.9 trillion, between 2016 and 2035. This is 4.1% above last year's projected demand of 38,050 jets, worth $5.6 trillion, for the period of 2015-2034.

While, 38% of the total commercial demand is likely to come from the Asian markets, another 21% and 19% should come from North America and Europe, respectively, and the remaining from the rest of the world.

Boeing's wide-body planes are one of the best-selling planes in the market, courtesy of its fuel efficiency and passenger comfort. To maintain its dominance in the commercial aerospace market, the company also continues to invest in research and development toward upgrading and churning out the upgraded versions of its existing planes.

Hence, the company is expected to witness a heavy flow of orders for its planes from carriers around the world. This will likely drive its top line, going forward. With the latest order, Boeing has already been tagged as the "front-runner".

2016 Order Details

Boeing's 2016 order details show that the company has booked 668 net commercial orders (accounting for cancellations), valued at $94 billion at current list prices. The figure includes 550 orders for the 737, followed by 58 orders for the 787. On the other hand, Airbus registered net bookings of 731 aircraft, thereby beating Boeing.

Since, Boeing and Airbus are the two largest players in the commercial aircraft space, their direct rivalry is quite evident, which leads to intensifying competition in the industry. At the end of 2016, total commercial airline industry backlog was12,589 aircraft, out of which Airbus' share was 55% or 6,874 aircraft, while Boeing has a 45% share or 5,715 aircraft.

Price Movement

Shares of Boeing have increased 37.1% over the last 12 months, outperforming the Zacks categorized Aerospace-Defense industry's gain of 27.2%. This could be because the company's strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases as well as earnings accretive acquisitions. The stock's performance is in line with that of General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII , which also surpassed the industry mark.

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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Boeing Company (The) (BA): 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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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