Boeing Aircraft Contract Worth $990M Fails to Boost Shares - Analyst Blog

The Boeing Company (BA), a U.S. aerospace and defense major, has received a contract to supply 10 Next-Generation 737-900 Extended Range (ER) aircraft to Alaska Airlines, a unit of Alaska Air Group, Inc. (ALK). The deal is valued at $990 million at the list price.

Despite wining big-ticket-size contracts, reporting strong delivery numbers for the third quarter of 2014 and streamlining existing operations, the company's share price on Oct 6, 2014 stood at $126.26, down around 0.1% from the last trading session. The company's share price decreased around 9.7% so far this year. The diminishing U.S. Defense Department budget scenario is a cause of concern.

Alaska Airlines has had a strong business alliance with Boeing. After this transaction, Alaska Airlines' total number of Boeing jets stands at 74. The aerospace and defense major provides different supports and services, including Wind Updates, Jeppesen eCharts and Landing Gear Exchange Programs, to Alaska Airlines from its Boeing Edge portfolio.

The 737-family airplane is witnessing a sharp rise in demand in the commercial aircraft market, primarily in China, India, the Middle East and African region, and other emerging countries due to the growing popularity of the low-cost carrier business. In addition, higher fuel efficiency and lower operating costs compared with other models also drive the rising demand of the 737 aircraft.

On Sep 20, 2014, Boeing received an order from the Ethiopian Airlines to deliver 20 units of 737 MAX 8, representing the biggest single Boeing order by the number of aircraft ordered by an African carrier.

In Jul 2014, Boeing rolled out its 5000th Next-Generation 737 aircraft with the delivery of a Boeing C-40A Clipper, a modified version of the 737-700C airplane, to the U.S. Navy.

During the third quarter of 2014, Boeing recorded a delivery of 120 Next-Generation 737 model airplanes, up from the year-ago figure of 112 units.

To cope with the anticipated rise in demand, Boeing aims to increase the 737 production to 52 airplanes per month in 2018, up from the existing 42 and the projected level of 48 in 2017. This will allow the company to meet the increasing customer demand, thereby improving cash inflow.

Boeing currently holds a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the same sector include General Dynamics Corporation (GD) and Huntington Ingalls Industries, Inc. (HII), each carrying a Zacks Rank #2 (Buy).