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Will the $1.2B 737 Max Deal Aid Boeing's Commercial Business?

Zacks Equity Research

The ongoing Dubai Airshow proved to be a productive event for Boeing’s BA 737 Max product line, after Turkey-based airline SunExpress agreed to expand its fleet by 10 additional 737Max 8 jets. The deal, valued at $1.2 billion, represents the first firm order for this family of aircraft since its grounding took place in March 2019.

However, it goes without saying that the successful delivery of these planes and subsequent revenue generation on Boeing’s part will be possible once the grounded 737 Max family of jets return to service.

737 Max Issue

Boeing’s commercial business has been struggling lately after its fast-selling 737 Max planes were grounded and new orders also dried up in the wake of the twin infamous crashes. Notably, the plane maker has been staggering to gain regulators’ approval of software fixes for the planes after a flight-control system was implicated in both crashes.  Moreover, constant conflict between the company and international air-safety authorities has been threatening the return of 737 Max fleet to service.

Also, the discord between the Federal Aviation Administration (FAA) and the European Union Aviation Safety Agency (EASA), which surfaced this September, regarding the re-certification of this fleet has compounded its woes.

Per a latest report by Reuters, Boeing has revealed its aim to resume the 737 Max service by the end of 2019 after making software changes. We believe this announcement to have acted as a key catalyst behind SunExpress’ recent order for 10 737 Max 8 planes.

Will Boeing Gain From Single-Aisle Jet Demand?

Per Boeing’s latest Commercial Market Outlook (CMO), the world will need 44,040 new planes, worth $6.8 trillion, between 2019 and 2038. This estimate came 3.1% above the previous year's projected demand for the 2018-2037 period. To this end, it is imperative to mention that the jet maker continues to identify cost-effective single-aisle jets as the major demand driver, accounting for 73.6% of the total projection. This translates into worldwide demand for 32,420 single-aisle jets, worth $3.48 trillion, mirroring a 3.4% increase over last year's projection.    

It goes without saying that the grounding of 737 Max jets and the subsequent delay in their return to service was a major blow to Boeing’s commercial business but it was only a momentary effect. Considering the world’s largest jet manufacturer’s experience, one can expect the company’s return to its predominant position in the single-aisle jet market once 737 Max starts to fly again.

In fact, the SunExpress airline, which specializes in offering direct connections across Europe, Turkey and popular holiday destinations, has achieved significant growth in recent years as it steadily expanded its fleet of mainly Boeing 737 airplanes. This trustworthy relationship with Boeing must have encouraged SunExpress to make the latest order.

Per the latest forecast made by the International Air Transport Association (IATA), air passenger numbers are likely to double to 8.2 billion in 2037. Considering this and the aforementioned single-aisle jet demand growth, we remain optimistic about Boeing’s success in the commercial jet market over the long run.

Price Movement

In a year’s time, shares of Boeing have gained 15.2% compared with the industry’s 20.1% growth.

Zacks Rank & Key Picks    

Boeing currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry are Air Industries Group AIRI, L3Harris Technologies Inc. LHX and Leidos Holdings LDOS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Air Industries’ Zacks Consensus Estimate for loss in 2019 has improved 63.6% over the last 90 days. The company came up with an average positive earnings surprise of 52.78% in the last four quarters.

L3Harris Technologies delivered an average positive earnings surprise of 5.02% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 3.3% over the past 90 days.

Leidos Holdings delivered average positive earnings surprise of 8.93% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved up 5.5% over the past 90 days.

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