Boeing's New Record Contract: Is it Enough?

Globally, the commercial aerospace industry has been growing despite lowered consumer confidence and European debt woes, and Boeing (NYSE: BA) has seen its stock climb 21 percent in the past six months as a result. That stock is set to rise even further on Tuesday on news that it has signed a deal worth $22.4 billion with Lion Air, the Indonesian airliner that currently has a fleet of 75 jets with services based in Jakarta.

The Indonesian airliner ordered 230 airplanes. Most of those jets will be 737 MAXs (201 units ordered) alongside a few next-generation 737-900 ERs (29 units ordered). Lion Air will also have purchasing rights on an additional 150 airplanes.

The news comes less than two months after the aviation company announced a military sale worth $30 billion of F-15 jets to Saudi Arabia. Last year, the company reported a record number of net orders: 805 airplanes in total. Boeing CEO commented on the "resiliency" of the air transportation market, even as 2011 proved a depressing year for airliners, with the bankruptcy of American Airlines (PINK: AAMRQ) a stern reminder that squeezed margins are threatening many airliners. Delta (NYSE: DAL), SkyWest (NASDAQ: SKYW), JetBlue (NASDAQ: JBLU), and US Airways (NYSE: LCC) have all fallen in the past year.

Airliners are restricted by expenses that airline makers do not face, such as high oil prices and low consumer buying power in developed nations, which limit the airlines abilities to offset higher operating costs with higher ticket prices. One trick spearheaded by European firm RyanAir (NASDAQ: RYAAY) was pricing for extra services, which has allowed ticket prices to look low while gaining additional revenue from checked bags, meals, and so on. While some consumers have responded to these extra charges with outrage, most seem to like the pricing model, since it translates to lower ticket prices.

While a bet on airliners themselves would not have paid off despite higher demand for air travel, a bet on Boeing offered an impressive yield in 2011, when equity markets were otherwise flat. Many analysts are expecting even better performance this year, as a revitalized American economy spurs demand for passanger and transport flights. This will help Boeing at a time when many analysts have worried that lower U.S. defense spending and sluggish European demand would challenge the jetmaker.

The company is also benefitting from improved efficiency in its production of new aircraft, especially the new 787 Dreamliner, which recently met with cheers when it landed at the Singapore Airshow.

While strong demand for commercial airlines and an expansion of foreign military contracts help the company, it has seen its earnings steadily rise in 2011 after a drop in Q1, with the year's EPS beating 2010's figures by nearly 11 percent. In total, Boeing earned $4.77 per share in 2011 on revenue of $68.7 billion, much higher than 2010's figure of $64.3 billion.

While Boeing is showing strength thanks to more contracts and a greater market presence, its stock price has proven sensitive to external market factors despite its own performance. Last summer the stock fell over 18.5 percent in less than two weeks as markets responded to the downgrade of American credit. With analysts looking grimly at Europe and America's economic recovery showing mixed signs of health, the company may face headwinds going forward as macroeconomic concerns leave some wondering if the market's recent bull run is doomed.