(BA) Boeing Gets Brazilian Order

The Boeing Company (BA) received a purchase order for 60 Boeing 737 MAX Aircrafts from Brazilian airliner, GOL Linhas Aereas Inteligentes S.A. (GOL). The order is valued at approximately $6 billion at published list prices. Boeing will deliver the airplanes in 2018. GOL Linhas said it will use the new aircraft mainly to renew its fleet in the future.

The 737 MAX is Boeing’s newest family of airplanes comprising 737 MAX 7, 737 MAX 8 and 737 MAX 9. Equipped with the new-engine variant powered by Commercial Fan Motor (“CFM”) International LEAP-1B engines, the 737 MAX is high on fuel efficiency and low on carbon dioxide emissions. The use of Advanced Technology winglet also enhances its performance. The interior of the airplanes comprise pivoting overhead stowage bins, which add to the spaciousness of the cabin. The bins give passengers more room to keep a carry-on roll-aboard near their own seat apart from providing additional leg space. The 737 MAX 8 is expected to incur lowest operating costs in the single-aisle category.

The 737 MAX has a high demand in the single-aisle market. This is primarily attributable to expansion of air services in India, China, Indonesia and several other emerging nations and the popularity of the low-cost carriers (“LCC”) business model around the globe.

Boeing enjoys a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and is also one of the largest aerospace and defense contractors. Besides, its revenues are spread across more than 90 countries around the globe.

Looking forward, Boeing in its 2012 Current Market Outlook estimates a $4.5 trillion market for 34,000 new commercial airplanes over the next 20 years. Boeing’s projection of growth is based on the strength of the commercial aviation market, recovery witnessed in world economies and strong demand for fleet addition and replacement. Airline traffic is forecast to grow at a 5% annual rate over the next two decades, with cargo traffic projected to grow at an annual rate of 5.2%.

Inspired by such strong projections, Boeing recently raised its full-year 2012 earnings per share guidance to a range of $4.40–$4.60 versus its earlier guidance range of $4.15–$4.35. The company’s revenue guidance for 2012 is in the range of $79.5–$81.5 billion versus the earlier range of $78.0–$80.0 billion. Commercial Airplanes’ 2012 deliveries are expected to be between 585 and 600 airplanes, which are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes’ 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margin hovering around 9.0%.

In the defense space, however, the threat of cutbacks will loom over the company going forward. Overall, Boeing expects defense revenue for 2012 to be between $31.5 billion and $32.0 billion with operating margin greater than 9%.

Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths, General Dynamics Corporation (GD) and L-3 Communications Holdings Inc. (LLL).

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