Friday, December 21, 2018

Boeing Gets Another $11.7 Billion in 737 MAX Orders

One hundred orders for the 737 MAX

Within just a week, Boeing has received another major order for its 737 MAX series aircraft from an African airline company. The airplane manufacturer announced yesterday that Green Africa Airways had ordered 100 planes, which were valued at a list price of $11.7 billion. The commitment was evenly split into 50 firm aircraft and 50 options.

As per the company, the latest deal is the largest aircraft agreement from an African nation. According to Boeing’s recently updated 20-year commercial market outlook, the African continent will need 1,190 new planes over the next 20 years.
The recent order came within a month of Caribbean Airlines ordering 12 similar planes on November 21. Though the details of the list price and delivery remain unclear, the first plane is likely to be delivered by the end of next year.

Just a day earlier, on November 20, South Korean airline Jeju Air ordered 40 737 MAX airplanes with options for ten additional jets. The transaction is valued at ~$5.9 billion at list prices, and the company has to deliver the aircraft between 2022 and 2026.


The 737 Max: Boeing’s fastest-selling plane

The 737 MAX is one of the major contributors to Boeing’s revenue growth. The 737 MAX model is Boeing’s most advanced aircraft in the single-aisle category. It provides superior economy and fuel efficiency. The single-aisle models come with a capacity of more than 90 seats.

The 737 MAX model is Boeing’s fastest-selling plane in history. Boeing has received a cumulative more than 4,800 orders from 100 customers worldwide for this model. Major US air carriers American Airlines and United Continental have placed orders for 100 planes each, while Southwest Airlines has placed an order for 280 planes.
 

Record results

Boeing reported its third-quarter earnings results on October 24. The company posted a 4% YoY (year-over-year) revenue rise to $25.1 billion in the quarter. Its core EPS rose 37% YoY to $3.58, higher than analysts’ consensus estimates of revenue of $23.91 billion and EPS of $3.47.


Strong growth in the company’s Defense segment’s revenue seems to have fueled its revenue growth. The segment’s revenue rose 13% YoY to $5.7 million in the quarter. The Defense segment’s orders have been on the rise recently given the boost in US defense spending.

The Commercial Airplanes segment, on the other hand, recorded a 1% YoY revenue fall to $15.3 billion as a result of Boeing’s aircraft deliveries falling 6% YoY to ~190 aircraft compared to the 202 aircraft it delivered in the third quarter of 2017. Boeing’s slowing deliveries are a known factor given the many supplier issues it faces.
 

Raised guidance

Boeing’s investors have reason to celebrate, as the company has again raised its 2018 revenue and earnings guidance. The company now expects to clock revenue in the range of $98 billion–$100 billion, $1 billion higher than its previous estimates, fueled by the performance of its Defense segment. It expects to clock core EPS in the range of $14.90–$15.10 compared to its earlier guidance of $14.30–$14.50. It has maintained its operating cash flow guidance at $15.0 billion–$15.5 billion.
 

Stock rises Investors should keep a close eye on the stock. Despite persistent supplier issues, Boeing has maintained its commercial airplane delivery target at 810 for the year, a big jump from the 568 it delivered as of the third quarter.

(Andrew Brunton - Market Realist)

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