Boeing Seals $8.5B Deal for 80 737 Max from SMBC Aviation
The Boeing Co. (BA) sealed yet another major deal for its 737 Max model from Japanese lessor SMBC Aviation Capital Ltd. Boeing has received orders for 80 737 Max airplanes, marking the largest single order from an aircraft lessor for this narrow-body jet. The deal is worth $8.5 billion at list prices.
The agreement further highlights a robust travel scenario in Asia with airlines increasingly boosting their fuel-efficient, single-aisle fleet. The deliveries are expected to run between 2018 and 2022. With this order, SMBC Aviation Capital happens to be the 50th 737 MAX customer.
Needless to say, the unprecedented rise in passenger traffic in the Asia-Pacific region is bringing in a steady flow of orders. The 737-family of airplanes is witnessing a sharp rise in demand in the commercial aircraft market, primarily in China, India, the Middle East and Africa, and other emerging countries due to the growing popularity of the low-cost carrier business. In addition, higher fuel efficiency and lower operating costs as compared to other models have made the 737 aircraft very popular.
The fourth generation of the 737 family – the 737 Max – is powered by Commercial Fan Motor (CFM.V) International LEAP-1B engines while the Advanced Technology winglet of this airplane enhances performance.
Additionally, the pivoting overhead stowage bins increase cabin space. The bins give passengers more room to keep a carry-on roll-aboard near their own seat besides providing extra leg space. This aircraft is 14% more fuel efficient than its closest peer in the single-aisle aircraft market.
The world’s leading commercial aircraft maker – Boeing − upped its 20-year forecast for jetliner demand in Jul 2014 on the back of promising travel in Asia and the increasing need for airlines to boost their fuel-efficient, single-aisle fleet. Boeing has already secured more than 2,400 orders.
This particular deal not only helps Boeing to boost its order book but also strengthens its position in Japan just as its European rival Airbus Group makes inroads. Japan used to be one of Boeing’s strongest markets. We remind investors that in Jul 2014, SMBC Aviation had announced its plans to buy 115 single-aisle aircraft from Airbus for $11.8 billion.
In spite of the competition posed by Airbus, Boeing’s delivery numbers continue to impress on the strength of its Commercial Airplanes Business. Boeing delivered 186 commercial airplanes in the third quarter, approximately 9.4% higher than the year-ago figure. During the quarter, the Next Generation 737 model proved its popularity once again. The company raised its full-year core earnings forecast for the third time, thanks to booming commercial aircraft demand.
Boeing currently holds a Zacks Rank #2 (Buy). Other well-placed stocks worth considering include General Dynamics Corp. (GD), Engility Holdings, Inc. (EGL) and Orbital Sciences Corp. (ORB). While Orbital Sciences sports a Zacks Rank #1 (Strong Buy), General Dynamics and Engility hold a Zacks Rank #2.
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