U.S. Markets open in 3 hrs 29 mins

Contracts Flow in for Boeing 777

Zacks Equity Research

The aerospace giant The Boeing Company (BA) won a sizeable contract on the first day of the Dubai Airshow on Sunday, sealing an approximately $25.2 billion deal at list prices with Etihad Airways for its revamped 777 long-haul jet.

Etihad has placed firm orders for 56 Boeing aircraft and the option to buy an additional 26. The Abu Dhabi carrier will be the launch customer of this 777X airplane and intends to buy both versions of the 777X, comprising 17 777-9X and 8 777-8X.

The Boeing 777-9X variant holds around 400 seats and is considered as the largest and most efficient twin-engine commercial jet in the world. The jet’s fuel consumption is cut by as much as 12% and has 10% lower operating costs. This jet is expected to be the primary 777 version with deliveries starting from 2020. On the other hand, the 777-8X variation will be the most flexible commercial jet in the world and has a higher range capability than the existing 777.

The order also takes into consideration a further 30 787-10 Dreamliners, which will make Etihad the largest operator of that aircraft. Etihad Airways will now have a total of 71 787s on order and Boeing plans to start deliveries of these jets in 2018.

Plagued by a number of technical issues in recent times, this 787-10 contract would be a confidence booster for Boeing. This airplane is the third and longest member of the 787 family with higher passenger and cargo capacity. Moreover, this jetliner is expected to be 25% more efficient than airplanes of its size at present.

Apart from the launch of Boeing’s latest incarnation of the 777 long-haul jet, the aerospace behemoth netted approximately $100 billion in orders at the Dubai Airshow on Sunday with three Middle Eastern airlines signing up to buy 225 of Boeing’s new 777X jets. In fact, Boeing’s total order value was twice that of its European rival Airbus, which captured 142 orders worth about $40 billion.

Of the major Gulf Arab carriers, apart from Etihad, Dubai-based Emirates Airline put orders for 150 of the planned Boeing 777X at a combined price tag of $55.6 billion. Boeing also received orders for 50 777X from Qatar Airways in a deal valued at $19 billion at list prices. Further, Flydubai, a budget carrier, committed to buy up to 111 Boeing single-aisle 737 aircraft.

The gradual recovery in the global economy is bringing in a steady improvement in passenger and freight traffic. As per the International Air Transport Association (:IATA), global airline passengers will touch the 3.6 billion mark in 2016, expanding 5.3% per annum in the period 2012 to 2016.

This is amply reflected in Boeing’s swelling order book. The company was able to secure net bookings of 805 airplanes in 2011, which jumped to 1,203 airplanes in 2012. Fresh bookings continue to come in this year. Boeing won net orders for 200 planes in the Sep 2013 quarter. Backlog at third quarter 2013 end remained strong with more than 4,800 airplanes valued at a record $345 billion.

Despite the many technical glitches plaguing the much-hyped Dreamliner, the company remains well on track with its robust backlog and deliveries. Again, sequestration and budget cuts notwithstanding, its defense segment also maintained a solid performance and fetched $7 billion in fresh new orders during the third quarter. Apart from the commercial airspace, Boeing is also one of the leading players in the U.S. defense sector.

Boeing currently holds a Zacks Rank #2 (Buy).  One can also look at Lockheed Martin Corp. (LMT), Huntington Ingalls Industries, Inc. (HII) and General Dynamics Corp. (GD) as good buying opportunities. These defense operators –holding a comparable Zacks Rank #2 (Buy) – have solid growth stories with the potential to rise significantly from current levels.

Read the Full Research Report on BA
Read the Full Research Report on GD
Read the Full Research Report on LMT
Read the Full Research Report on HII

Zacks Investment Research