In my latest report on the sector, I had mentioned how Airbus (EADSY, Financial) moved ahead in the narrow-body race by successfully completing the maiden flight on the A320neo. But now it seems even Boeing (BA, Financial) isn’t far off. Recently, the American aerospace major secured two significant orders — one from Ethiopian Airlines and the other from Ryanair (RYAAY, Financial) — together valued at $13.1 billion. Industry experts believe this to be a significant development in the field. Let’s check out what happened and how this affects Boeing.
Boeing receives a good boost as it secures large order
Africa’s significant aerospace player Ethiopian Airlines has agreed to buy 20 Boeing 737 Max 8 jets, a deal valued at $2.1 billion, based on the list price. The story doesn’t end here. Ethiopian Airlines also has the option to buy another 15 jets, pulling up the total count to 35 jets. After the news of the orders came out, Boeing said in a statement, "This historic order for Boeing and our partner Ethiopian once again positions the carrier at the heart of African aerospace innovation."
This isn’t the only good news for Boeing. Recently, Europe’s Ryanair agreed to buy 100 Boeing 737 Max 200s, pushing the deal value to a stupendous $11 billion. Both these deals together are valued at $13.1 billion, something every aircraft-maker dreams to receive in a go.
Boeing 737 Max. Picture taken from Awesocool.com
Why this is significant for Boeing
Boeing launched the 737 Max family with the intention to capitalize on the growing demand for fuel-efficient aircraft. The jet family offers 14% more fuel-efficiency compared to the 737, including 737 Max 7, 737 Max 8 and 737 Max 9. The jet-maker also recently introduced the 737 Max 200, which is an upgraded version of the 737 Max 8, and can accommodate up to 200 passengers per flight. This model is aimed at low-cost airlines and provides an additional 20% reduction in cost per seat.
Such huge orders are important to aircraft-makers for a host of reasons. First, Boeing got a leg up in competition against Airbus with these orders. Airbus had launched the A320neo much ahead of the 737 Max. Currently, the order backlog for A320neo is north of 3,200 aircrafts. However, the order backlog for the 737 max is about 2,300 aircrafts. Though the numbers aren’t on Boeing’s side, the point to note is Boeing’s offering is gaining popularity quite fast, and this is definitely a good sign. Boeing is catching up fast in the narrow-body jet game.
Another factor that makes the new orders important is the fact that these orders reflect the company’s future potential to generate cash. With the order volume rising, Boeing’s topline is becoming more and more secured —Â definitely something that Boeing investors desire.
Third, Boeing seems to have the jet that everyone is after. With the global economy improving, the demand for aircraft is expected to shoot up, and more than 70% of deliveries are forecasted to be in favor of narrow-body single-aisle planes. The 737 Max seems to be just the perfect offering, and the increasing order volume is ensuring this claim.
Parting thoughts
Boeing and Airbus have been locked in an arm-wrestling match for decades, and while both players make top-notch machines, someone has to win the game. With these new orders, Boeing is making up well for the lost time due to delay in launching the model. Let’s keep a close watch on the space and see how things unfold for the American aircraft-maker.
