Boeing Set To Win China Eastern's $7.4B Order - Analyst Blog

Aviation major The Boeing Co. BA has secured a commitment of a sizable order from a Chinese carrier China Eastern Airlines Corp. for 80 737 single-aisle jets. The deal, a mix of the current 737-800 and the new 737 MAX model, is valued at a whopping $7.4 billion at current list prices.

Upon finalization, the contract will likely be the largest purchase by any Chinese airline for single-aisle airplanes. The jets are expected to be delivered in stages between 2016 and 2020. As part of the accord, China Eastern would also dispose of 20 ageing Boeing aircraft – 15 737-300s and 5 757s – to Boeing for an unspecified amount of cash.

The unprecedented rise in passenger traffic in the Asia-Pacific countries is bringing in a steady flow of orders. Specifically, Chinese airlines are expanding their fleet size to cope with the country's rapidly rising air-travel demand. They are also busy modernizing their fleet through retirement of older and less fuel-efficient aircraft to cut operating costs.

The fourth generation of the 737 family – the 737 Max – is a premier aircraft from Boeing's stable and sees brisk demand in the single-aisle market for its fuel efficiency and low carbon dioxide emissions. Powered by the Commercial Fan Motor (CFM) International LEAP-1B engines, the Advanced Technology winglet of this airplane also enhances performance.

Additionally, the pivoting overhead stowage bins increase cabin space. The bins give passengers more room to keep a carry-on roll-aboard near their own seat besides providing extra leg space. This aircraft is 14% more fuel efficient than its closest peer in the single-aisle aircraft market. The 737 MAX is seeing increasing traction in countries like China, India, Indonesia, Turkey and several other emerging countries. First flight of Boeing's 737 Max is expected in 2016 with deliveries beginning in 2017.

Boeing's commercial airplane unit is witnessing a major boost in 737 orders this year.  As of Jun 10, 2014, the company won just one order for a 747, seven orders for 777 and a single order for a 787 Dreamliner. The 767 has failed to clinch a single order year to date.

In contrast, Boeing's order book will rise to 465 net orders for the 737 so far this year subject to the successful finalization of the China Eastern order. The plane maker has also received commitments for 50 737s from Shandong Airlines and 50 orders from 9 Air this year for the 737.

Continuous order flows are a testimony to Boeing's dominance in the flourishing commercial airplanes market. Indeed, this commercial aerospace behemoth is flying high on the back of rising demand for its new fuel-efficient commercial planes. Last year, it reported record jet deliveries, beating its own projection, driven by strong commercial numbers. The heightened deliveries were also a function of an increased production rate.

Boeing currently has a Zacks Rank #3 (Hold). Other well-placed players in the aerospace and defense industry include Embraer S.A. ERJ, Lockheed Martin Corp. LMT and Leidos Holdings, Inc. LDOS. While Embraer carries a Zacks Rank #1 (Strong Buy), Lockheed and Leidos Holdings hold a Zacks Rank #2 (Buy).