Commercial airplane manufacturer The Boeing Co. BA announced that it received commitment from China Southern Airlines for the purchase of 80 737 aircraft. The 737 is one of the best-selling single-aisle airplane models in Boeing’s fleet. The unmatched quality and comfort offered by the aircraft to passengers as well as airline operators have ensured continuous order flow for the same.
Till Nov 2015, Boeing received orders in excess of 13,000 for the 737 model and has a backlog of nearly 4,231 jets. This demonstrates the importance of the model as well as the willingness of customers to wait for years to add the aircraft to their fleets. Between October and Nov 2015, Boeing received orders for 148 airplanes, out of which nearly 66% comprised variants of the 737 model.
The latest commitment from China Southern Airlines includes a combination of 30 Next-Generation 737s and 50 737 MAX airplanes, worth $8.38 billion at current list prices. However, the company generally gives discounts for bulk orders, so the actual value of the order should be lower than list prices.
This commitment is an extension of the long-standing relationship between Boeing and China Southern Airlines. Prior to this announcement, China Southern Airline had placed orders for 179 jets to Boeing, out of which 120 were variants of the 737 model.
Boeing expects China’s commercial aircraft fleet to triple by 2034, generating demand for nearly 4,630 new single-aisle aircraft. Estimated value of the total aircraft demand will be nearly $950 billion and Boeing, with its high-quality 737 model, is expected to grab a major share of the orders. However, the company is expected to face stiff completion from Airbus Group SE EADSY. Airbus is projected to increase its single-aisle aircraft production rate to 60 per month in mid-2019.
Boeing currently has a Zacks Rank #2 (Buy). Other favorably ranked stocks in the aerospace and defense space are Leidos Holdings, Inc. LDOS, sporting a Zacks Rank #1 (Strong Buy), and General Dynamics Corporation GD, carrying a Zacks Rank #2 (Buy).
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