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Boeing Eyes Multi-Billion Dollar China Orders

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The Boeing Company (BA) is flying high on demand for its new fuel-efficient commercial planes from airlines around the world. The maturing U.S. airplane market, once deemed to be the largest, has had little impact on this commercial airplane maker. Any slowdown in demand in the U.S. has been more than compensated by a fast expanding Asian airplane market.

As per media reports, the plane maker has secured commitments from various Chinese customers for about 200 of its upgraded variant of the short-haul aircraft, the 737 Max. The deal, which is subject to the Chinese government’s approval, has a combined value of $20.7 billion at list prices. This marks the first commitment for the 737 Max from China.

This staggering order came from a wide range of customers comprising China’s state-owned airlines, China Aviation Supplies Holding Company, as well as leasing firms associated with the country's banks. We note that Air China, China Eastern Airlines and China Southern Airlines all operate the current models of Boeing’s 737 in the country.

The fourth generation of the 737 family – the 737 Max – has been upgraded with new and more fuel efficient CFM International LEAP-1B engines. Boeing’s 737 MAX, which competes with its European rival Airbus’ A320 neo, has firm orders totaling 1,567 as of Sep 2013. From China alone, Boeing estimates delivery 3,900 single-aisle aircraft in the next two decades.

Meanwhile, Boeing also clinched a firm order from Korean Air Lines Co. in a deal worth $3.9 billion in list price to modernize its fleet. Particularly, the country’s biggest carrier is buying five 747-8 Intercontinentals, five 777-300ERs and one 787 Dreamliner. The deal was approved by the board of Korean Air.

Korean Air currently has a fleet of 90 Boeing passenger airplanes mainly comprising the 737, 747 and 777 planes. The airline also uses Boeing’s other aircraft like the 747-400, 747-8 and 777 Freighters. In fact, the airline's Aerospace unit is partnered with Boeing on both the 747-8 as well as 787 programs.

Adding to Boeing’s swelling order book, the U.S. plane maker has reached an agreement recently to sell 20 Boeing 737-800 jets to Aerolineas Argentinas. The deal is worth $1.8 billion at list prices.

With a backlog of orders worth $415 billion, Boeing has been ramping up its production of big commercial aircraft. On Wednesday, Boeing reported strong third-quarter 2013 numbers and raised its full-year outlook on soaring commercial aircraft deliveries and margins. Its shares also hit an all-time high.

The stellar third-quarter results from its commercial airplane biz, which delivered more planes at higher profit margins in the quarter, helped offset the weakness in the defense division, where revenues rose just 3%, margins contracted and profits were cut down.

The aerospace giant says that it will speed up the production of the new 787 by 40% by the end of the decade. The 787 Dreamliner has been beset by problems from the very beginning and this year has seen no end to Dreamliner worries. Issues pertaining to the plane’s reliability and safety still harass airline operators, and Boeing engineers.  

Boeing is the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors apart from Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC) and General Dynamics Corp. (GD). Though the company has had glitches with its 787 mascot with respect to several technical dilemmas, its share price has proven to be shock resistant, surging 69.9% so far this year. The company presently retains a short-term Zacks Rank #3 (Hold).

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