Markets
BA

U.S. Navy Buy Boosts Boeing's Order Book (and Its Profits)

Boeing's P-8A Poseidon: It's a 737 -- with missiles. Image source: Boeing .

It's official. The U.S. Navy is buying some more airplanes from Boeing . We're not talking F/A-18 fighter jets this time, though, but Boeing 737-800 commercial jets.

You see, the Boeing 737-800 NG is the chassis upon which Boeing builds its P-8A Poseidon maritime patrol aircraft -- a jet-powered surveillance bird designed for anti-submarine and anti-surface warfare, as well as for intelligence, surveillance, and reconnaissance missions. And that means that whenever Boeing Military Aircraft receives an order for Poseidons, Boeing's Commercial Airplanes division must build a batch of 737s first.

Speaking of which...

Last week, the U.S. Department of Defense did in fact announce a contract to buy 20 new P-8A Poseidon maritime patrol aircraft from Boeing. It failed to place the order quite soon enough for the planes to make it onto Boeing's order book last week. But the orders did finally show up this week.

And lucky for Boeing. As it turned out, those new Poseidons -- 16 for the U.S. Navy and four more for the Australian military -- were the only new plane orders Boeing received this week. Added to last week's tally, Boeing's order book now looks like this:

  • 60 orders for single-aisle Boeing 737s
  • Six orders for widebody 777s
  • And one single order for a 787 widebody.

That's 67 gross orders total. And with no cancellations received so far this year, Boeing's net order total is also 67.

Why this matters

Now why is all of this important to Boeing? There are several reasons. First and most obviously, while Boeing's P-8A Poseidon is derived from the 737-800, it's a much more expensive plane. The $2.47 billion contract awarded to Boeing last week works out to $123.5 million per Poseidon -- 29% more than the $96 million sticker price on a basic civilian 737-800. (That's the cost for the airframe and engines, only, by the way. Add in avionics, sensors, weapons, and all the other military tech, and a Poseidon's total cost soars past $170 million per plane). What's more, aircraft valuation and consulting firm Avitas reports that in the real world, Boeing offers airlines steep discounts on that list price.

How steep? According to Avitas, your average 737 might sell for as much as 54% off list price. As a result, when sold to a civilian airline, these 20 737s would produce no more than $44.5 million each ($890 million total). But when sold to the U.S. and Australian militaries, Boeing's revenues roughly triple.

Final point before we close: According to The Wall Street Journal , civilian 737 sales generate "between 40% and 45% of the operating profit" that Boeing Commercial Airplanes earns in a year. This almost certainly makes the civilian 737 the single most profitable aircraft Boeing sells. And the fact that 737s, when destined for transformation into Poseidons, make even more money?

That's just fabulous news for Boeing.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article U.S. Navy Buy Boosts Boeing's Order Book (and Its Profits) originally appeared on Fool.com.

Rich Smith does not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 251 out of more than 75,000 rated members. Follow him on Facebook for the latest defense news.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

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.

In This Story

BA

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More