U.S. Markets closed

Boeing & Malaysia Airlines Agree on Deal for 16 Airplanes

Zacks Equity Research

Aircraft giant, The Boeing Company BA, has recently agreed to sell 16 of its airplanes to Malaysia Airlines. The deal was sealed by signing a Memorandum of Understanding (MOU) by both parties. The MOU comprises of two orders for delivery of eight 787-9 Dreamliners and 737 MAXs each.

Details of the Deal

The order for eight 787-9s was converted from a previous order of 737 MAX. Malaysia Airlines also added eight purchase rights over 737 MAX aircraft. Further, the national carrier opted for Boeing's Global Fleet Care service to maintain its current and future Boeing airplanes. If finalized, this agreement will get reflected on the Boeing’s orders and deliveries website.

Notably, the 16 planes are worth $3.06 billion at list prices, according to Bloomberg. But it goes without saying that the airlines will enjoy a substantial discount on this amount.

According to the Malaysian Prime Minister, Najib Razak, the airline may place an order for another 25 737s in the near future. It is anticipated that on finalization, this deal will be worth more than $10 billion within five years. However, Boeing has not reciprocated to this statement of Razak.

787-9 Fleet

Boeing’s 787-9 Dreamliner jet represents one of the latest models of the company’s family of superefficient 787 jets, offering more seats and cargo capability than its previous versions. With the fuselage stretched by 6 meters (20 feet) over the 787-8 model, the 787-9 comes with 20% less fuel use and 20% fewer emissions than other aircraft of similar size.

Leveraging the visionary design of the 787-8, the 787-9 jet promises to offer passenger-pleasing features such as large windows, large stow bins, modern LED lighting, higher humidity, a lower cabin altitude, cleaner air and a smoother ride.

737 MAX’s Attributes

Boeing’s 737 MAX family of commercial aircraft incorporates the latest-technology CFM International LEAP-1B engines to deliver the highest efficiency, reliability and passenger comfort in the single-aisle market. In particular, these jets boast a 40% smaller noise footprint than today's single-aisle airplanes.

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.

Our View

We would like to remind investors that, despite facing several headwinds from the very beginning of its inception, the 787 family of jets has remained one of the crucial centerpieces of Boeing’s commercial aircraft business line.

Evidently, per the company’s second quarter 2017 results, Boeing has made notable progress on the 787 program. The company also announced recently that it will increase its production rate for this program to 14 per month in 2019.

Markedly, Malaysia Airlines, the Southeast Asian nation’s flag carrier, has been a long-standing customer of Boeing. In 2016, the airlines signed a deal to purchase up to 50 737 MAX aircraft, which included 25 firm orders and 25 purchase rights. The deliveries of these planes are expected in 2019 and 2021.

We believe that Boeing’s 787 fleet will empower the airlines to operate in any place in Europe and some destinations in the United States. In fact, deal for 787-9s is expected to open up more number of global routes for the carrier, thereby encouraging it to buy more of Boeing’s aircraft and bringing in more revenue for the aircraft major.

Encouraging Q2 Order Details

A quick sneak peek into the company’s recent order details will further boost investors’ optimism in this stock’s growth. Evidently, in the first half of 2017, Boeing booked 381 net commercial orders. On the contrary, the company’s arch rival, Airbus Group SE EADSY, registered net bookings of just 203 aircraft in the same period, thus trailing far behind.

Being the two largest players in the commercial aircraft space, Boeing and Airbus faces intensifying competition in the Aerospace–Defense industry. Nevertheless, Boeing’s huge order growth have recently placed it in a better position in the industry and orders like the latest one will surely help it to retain that leading position.

Price Movement

Shares of Boeing have surged 89.5% in the last 12 months, outperforming the industry’s gain of 41.7%. This could be because the company’s strong balance sheet and cash flows that provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions.

Zacks Rank & Key Picks

Boeing currently holds a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same space include Leidos Holdings, Inc. LDOS and Northrop Grumman Corporation NOC. While Leidos Holdings sports a Zacks Rank #1 (Strong Buy), Northrop Grumman carries the same bullish rank as Boeing. You can see the complete list of today’s Zacks #1 Rank stocks here.

Leidos Holdings delivered an average positive earnings surprise of 18.01% in the last four quarters. The Zacks Consensus Estimate for current-year earnings moved up 1.1% in the last 30 days.

Northrop Grumman pulled off an average positive earnings surprise of 12.60% in the last four quarters. Its 2017 earnings estimates inched up 0.2% in the last 30 days.

5 Trades Could Profit "Big-League" from Trump Policies

If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.

Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure.

See these buy recommendations now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
Boeing Company (The) (BA) : Free Stock Analysis Report
Airbus Group (EADSY) : Free Stock Analysis Report
Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
To read this article on Zacks.com click here.