Boeing Wins at Air Show
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Farnborough International Air Show is an iconic global aviation event. The event is held every two years and lasts for two weeks. The first week consists of the event’s trade exhibition and then moves on to a public air show. The true value of this event is realized within the week’s trade exhibition. In 2010, $47 billion worth of orders were announced during the event. The 2012 event got off to a promising start. On the first day Boeing (NYSE: BA) announced an order for 75 planes worth $7.2 billion from Air Lease Corp. (NYSE: AL). The order is for the new, fuel-efficient 737 MAX, 60 of the MAX 8 version and 15 of the MAX 9 version.
Air Lease Corp. is not the only company at this event interested in the 737 MAX. General Electric’s (NYSE: GE) Capital Aviation Services is expected to order 100 planes from Boeing; the estimated value of GE’s purchase is $9.25 billion. Aeromexico is also rumored to be interested in purchasing an assortment of planes from Boeing in the near future. However, the deal is not expected to close at the event. Of the planes they are interested in, the 737 MAX is rumored to be one of them. Boeing has sent a sales team to Mexico to secure the order.
The 737 MAX is attractive for many reasons. The most import reason, of course, is its fuel efficiency. According to Boeing, the MAX has a 13% fuel burn improvement over current models, an improvement that could translate into large savings for many operators. The largest expense in the airline industry is typically jet fuel. The MAX is scheduled for a 2017 commercial debut. So far the plane has amassed more than 1,000 orders and commitments.
The Air Lease order is a major deal for Boeing, in terms of more than just numbers alone. This deal will renew longstanding ties with Air Lease founder Udvar-Hazy, the man known as the godfather of the leasing industry. Lessors place jets with multiple airlines, which will broaden the base for the MAX. For this reason lessors make for attractive buyers. Air Lease is the first lessor to purchase the 737 MAX, making this a milestone for this model.
Although defense budgets remain flat, the civil aerospace sector is ramping up, so this trade show that the deals made come at a crucial time for the industry. While the show is off to a great start for the civil sector, it looks a little gloomy for the defense sector; Northrop Grumman (NYSE: NOC), one of the largest defense contractors, pulled out of the show entirely. Boeing, however, already has deals rolling in. Hopefully that streak will continue throughout the show.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
