Latest Order Win for 'The Queen of the Skies' Soothes Boeing's Concern about The Iconic 747

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Mar 22, 2015

American aero major Boeing (BA, Financial) grabbed investor attention recently as it announced an order win for the “Queen of the Skies”, the 747-8 freighter aircraft, and stock soared 1.15%. Silk Way West placed orders for three 747-8F in a deal valued at $1.1 billion at list prices. This gives the company some relief as the aircraft’s backlog is evaporating with almost no new orders. The Chicago based aero company has been actively trying to market its iconic plane to improve its backlog. However, the rising popularity of the smaller twin-engine wide body aircraft has eroded the demand for the four-engine fuel guzzler. That’s why the latest order from the Azerbaijan-based airline gives a bit of respite to Boeing.

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Boeing 747-8F. Source: Boeing website

Zeroing in on the deal
Silk Way is a cargo carrier and a subsidiary of Silk Way Group. On the back of improving economy, movement of freight is expected to improve gradually and that’s why the carrier looking at growing its business, and Boeing’s aircraft meets its requirements perfectly. Well, this isn’t the first time that an airline as found the jet to be worthy of an investment. The 747 has had a glorious life all through, has been used widely on missions that other jets wouldn’t have been able to pull off. The passenger version has been serving as Air Force one for years and even the next presidential aircraft will be from the 747 family. The highly customized presidential planes are to be delivered starting 2018.

Influx of $1.1 billion through this model is a big thing particularly because its demand has been fading gradually. However, considering the standard discounts that are being offered on this plane, airplane valuation firm Avitas estimates that the actual deal price should be around $589 million. Marty Bentrott, vice president sales of Boeing Commercial Airplanes said, "The 747-8 is perfectly suited to meet the needs of Silk Way Group for their growing cargo business. We value our partnership with Silk Way West and are grateful for their enduring confidence in Boeing and the 747-8 Freighter." In 2014, despite trying hard through various campaigns, Boeing couldn’t crack a single net order for the flagging program. But, this year got a good start.

The order makes Boeing’s life a little easy
Till date Boeing has delivered 28 747-8 intercontinental and 56 747-8F to eight customers. The company currently has a backlog of 35 747s, excluding the latest order. As demand for the aircraft has been waning and the cargo market has not shown much recovery, the company announced last December that it would cut its production rate from 1.5 a month to 1.3, which would be effective this September. The jumbo jet’s has sold extremely slowly. Airbus (EADSY, Financial) faces a similar situation for its superjumbo, the A380, other than the fact that it doesn’t have a freighter version. So Boeing doesn’t face competition for the 747-8F – that’s an edge Boeing has over its European rival, provided cargo demand increases.

Boeing’s vulnerable aircraft made its first commercial flight way back in 1970. It revolutionized the aviation space completely. But with the advent of twin-engine wide body planes that could fly passengers on long routes, the aircraft started losing its edge as it consumed greater amount of fuel. But the latest order backs management’s belief that there’s demand out in the market and it’s only a matter of time before the 747 bounces back again. While current situation suggests the aircraft may go out-of-production in a few years’ time, the incoming orders are keeping the faith for a brighter tomorrow alive.