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Will Boeing (BA) Lose the Largest Jet Maker Title to Airbus?

Zacks Equity Research

The Boeing Company BA has been overhauled by Airbus SE in commercial plane deliveries during the first half of 2019, as the crisis related to Boeing’s 737 Max product line continues. Notably, Airbus has outpaced Boeing, the largest aircraft manufacturer, in commercial plane deliveries this year for the first time in eight years.

Boeing vs Airbus: 1H19 Figures

At the end of the first half of 2019, Boeing reported 239 commercial plane deliveries compared with 389 for Airbus, which witnessed a 28% rise year over year.

On the contrary, Boeing deliveries plunged 37% from the year-ago figure. This downside was primarily caused by lower deliveries of 737 Max jets, courtesy of the two deadly crashes, which ultimately led to the grounding of all the 737 models since mid-March.

Will Boeing Lose its Title to Airbus?

The Paris Air Show, held this June, did not turn out to be impressive for Boeing compared to the previous International Air shows. In the wake of two fatal crashes of the 737 aircraft, Airbus dominated the Air Show with twice as many new plane orders than Boeing. Additionally, Airbus is leading the emerging market for long-range, midsize jets.

This month, things even worsened for the American aircraft giant. Boeing lost a mega deal to Airbus after Saudi Arabian carrier Flyadeal made commitments to buy 50 A320 Neo jets, replacing its $5.9-billion agreement with Boeing for 737 Max 8 jets.

Further, aircraft storage costs and other expenditures are expected to flare up, given the amount of halted deliveries for the 737 jets. The latest developments, combined, do not seem to be prospective enough to revive the company’s growth on the commercial front, at least any time soon.

The latest difference in the delivery numbers only increases Airbus’ chances of replacing Boeing as the world's largest aircraft maker.  

JV With Embraer: Boeing’s Saving Grace

The prospect of Boeing’s commercial business line seems to be doomed for now, but every cloud has a silver lining. To this end, Boeing’s $3.8-billion joint venture (JV) with Embraer ERJ, expected to close by the end of 2019, offers some respite. Particularly, the JV is expected to strengthen the company’s commercial business against Airbus, and theemerging aerospace companies from China, Russia and Japan.

The proposed partnership will also likely be accretive to Boeing's earnings in the beginning of 2020 and generate estimated annual pre-tax cost synergies of $150 million by the third year. Considering Boeing’s years of experience in manufacturing profitable jetliners and the latest JV, we anticipate a new commercial product line from Boeing, and thus, foresee a profitable future for its commercial business over the long run.

Price Performance

Ever since the second crash of Boeing’s 737 aircraft, its shares have declined 11.8% against the industry’s growth of 1.3%.

Zacks Rank & Key Picks    

Boeing currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are Northrop Grumman Corp. NOC and Textron Inc. TXT, each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Northrop Grumman came up with an average positive earnings surprise of 18.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 2.26% to $19.42 in the past 60 days.

Textron generated an average positive earnings surprise of 7.62% over the trailing four quarters. The Zacks Consensus Estimate for current-year earnings moved up 0.82% to $3.70 in the past 90 days.

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