Boeing & flydubai Ink $27B Deal for 225 737 MAX Airplanes

The Boeing Company BA has inked a deal with flydubai for 225 737 MAX airplanes. Valued at $27 billion at current list prices, the order was awarded during the 2017 Dubai Air Show. It marks the largest-ever single-aisle jet order from a Middle East carrier.

Order in Detail

The agreement comprises a commitment for 175 MAX airplanes and purchase rights for 50 additional MAX jets. Among these 175 airplanes, the order includes over 50 737 MAX 10s — the newest and largest member of the 737 MAX family — along with other MAX 8 and MAX 9 airplanes.

With this third aircraft deal, flydubai, which started flights in 2009, will surpass its previous record order of 75 MAX jets and 11 Next-Generation 737-800s that was signed at the 2013 Dubai Airshow. The current fleet of the carrier is all Boeing and at present only operates 737-8s.

Delivery of the 175 planes will commence in 2019 and be spread across 10 years with some coming ahead of the 2013 order. Given the size of the deal, it is expected that flydubai will get a discount on the list price of the aircraft.

Deals Inked at the Ongoing Dubai Air Show

Demand for Boeing’s commercial airplanes has been rising due to a steady increase in passenger and freight traffic.

Of late, at the Dubai Air Show, this aircraft giant received an order from the Kuwait-based ALAFCO Aviation Lease and Finance Company for 20 additional 737 MAX 8s, valued at $2.2 billion. Additionally, the company secured an order for five more 787-8 Dreamliners and a commitment to purchase two large freighters, valued at approximately $1.9 billion, from Azerbaijan Airlines.

Apart from this, the company sealed a deal for delivering 40 787-10 Dreamliners to Emirates,  the largest airline in the Middle East.  The purchase order also comes with equipments related to the 787-10 fleet, valued at $15.1 billion.

Given the enormous commercial demand in the market, Boeing is witnessing significant progress, especially in the single-aisle market.

Global Demand for Single-Aisle Aircraft

Boeing anticipates demand for 29,530 single-aisle jets, worth $3.2 trillion, in the next 20 years. The figure reflects a 5% increase over last year's projection.

Moreover, the company expects single-aisle jets to be the major driver behind the increase in demand, comprising 72% of the total commercial jets’ demand projection. While the new 737 MAX and the 737-800 is likely to grab the lion’s share of the new orders, Boeing’s arch-rival Airbus Group SE’s EADSY A320neo is expected to pose significant challenges. Recently, Airbus received an order for 430 single-aisle airplanes valued at $49.5 billion at the Dubai Air Show.

Nevertheless, Boeing’s 737 model remains one of the best-selling planes in the single-aisle market, thanks to its fuel efficiency and passenger comfort. Therefore, to maintain its dominance in the commercial aerospace market, this aerospace behemoth continues to invest in research and development for upgrading and churning out upgraded versions of its existing planes.

The 737 model is the fastest-selling airplane in Boeing’s history, exceeding 4,000 total orders from 92 customers.

Price Movement

Share price of Boeing has surged 77.5% over the last 12 months, outperforming the broader industry’s gain of 35.6%. 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 also performed better than that of General Dynamics Corporation GD and Lockheed Martin Corp. LMT, which missed the industry mark.

Zacks Rank

Boeing 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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