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Boeing Delivers First 737-8, Updates KC-46A Status, Says Will Build Training Jets in St. Louis

Paul Ausick

Boeing Co. (BA) announced Tuesday afternoon that it had delivered its first 737 MAX 8 (737-8) to Malindo Air, a subsidiary of Indonesia's Lion Air. This is the first delivery of the latest generation of single-aisle 737 planes from Boeing. The first was delivered to Lufthansa in December 1967.

But that was just one of three noteworthy happenings at Boeing on Tuesday. The second was the company's announcement that if it wins the competition to build a new training jet for the U.S. Air Force, it will build the jets in St. Louis, already the home of the company's defense and space division. The company said that building the new T-X trainer — contract valued at around $16 billion — will support about 1,800 jobs.

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The third piece of news is related to the defense and space division's delivery of the first KC-46A tankers to the U.S. Air Force early next year. The new tanker is based on a Boeing 767-200 commercial jet that has been modified. The tanker still needs to receive its Federal Aviation Administration (FAA) airworthiness certification in the form of an amended type certification (ATC) and a supplemental type certification (STC). According to a report at Aviation Week, the company has completed about 90% of the ATC and 60% of the STC. Without FAA certification, the Air Force will not accept the planes.

The 737-8 delivery to Malindo Air comes just a week after Boeing revealed that it had grounded test flights of the plane after finding a defective part in the engine's low-pressure turbine. Because only one supplier had provided the part, Boeing was able to inspect and swap out the faulty part quickly enough to deliver the first plane about a week ahead of the promised date.

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The announcement on where Boeing intends to build the T-X trainer was no particular surprise. What Boeing did not say was how many of the jobs "supported" by the T-X will be new. The St. Louis facility has lost about 2,000 employees over the past decade, according to The Wall Street Journal.

Boeing's proposed T-X is a clean-sheet design developed with Saab and will compete against a team made up of Lockheed Martin and Korea Aerospace Industries (KAI) on a modified version of KAI's T-50. The other bidder is the U.S. division of Italy's Leonardo, which is proposing a version of its existing training jet, the M-346, dubbed the T-100.

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The KC-46A tanker program has cost Boeing more than $2 billion in overcharges so far in the development phase, but the company has low-rate production contracts for 34 USAF planes and has struck a deal to sell the plane to Japan as well. Annual production of the tankers is currently set at 15 with a total order of 179 planes.

Tuesday's Boeing news was generally good, but there are some headwinds. One is the Trump Administration's travel restrictions on flights from the Middle East and the proposed banning of carry-on laptop computers from commercial flights originating outside the United States. If fewer people want or are permitted to fly into the United States, Boeing and rival Airbus may not build as many planes as the two companies' order books show.

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Analysts at UBS have claimed that Airbus is about 17% "over-ordered." The Airbus backlog is much larger than Boeing's, and the European maker has more large customers making large orders. But that does not imply that Boeing is immune to cancellations and delays in its commercial division. The company should celebrate the resurgence in its defense business at just the time Boeing might really need the help.

Boeing stock traded down about 1.6% Wednesday morning, at $179.72 in a 52-week range of $122.35 to $187.21. The consensus price target on the stock is $188.05.

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