Boeing is Back After Closing First Big 737 Max Order After Crisis
Like the legend of the phoenix, all ends with beginnings. It looks like Boeing is finally watching the light at the end of the tunnel as the company has just announced its first big selling order of 737 Max since the grounding ended. What are the implications for the company and the BA stock? We will see.
Irish low cost airline Ryanair said it had ordered 75 new Boeing 737 MAX jets in a deal worth over 7 billion dollars. The company's Chief Executive, Michael O'Leary, also said he would like to place another order in less than a year and a half. "It's certainly the deal of the new century."
The deal is the first big order for 737 MAX jets following the ending of the banning of these airplanes after two fatal crashes in 2018.
Boeing Chief Executive David Calhoun affirmed he was confident that the order book would be filled with the certification of the airplane.
The deal's price was not disclosed, but according to the listing price, the agreement is valued at over 7 billion dollars. However, Ryanair was reportedly receiving a discount due to cancellations and delays in delivering previous orders of the very same aircraft. Experts' talks say that discounts usually are about 50' percent of listing prices.
Very much part of the agreement we announced today is that Ryanair are going to be at the front of the queue when Boeing are able to price a MAX 10 order and put together a delivery programme.
However, United Airlines announced it would be the first airline to receive a Boeing 737 MAX delivery after the 20-month banning. United is expected to receive its aircraft next week.
The 737 MAX Just Took Off in an American Airlines Flight
American Airlines performed the first flight of the Boeing MAX 737 since March 2019 with a 1-hour test flight full of journalists. Pilots highlighted regulatory and safety changes done to the aircraft.
The turn is now for pilots and flight attendances to recover confidence in the airplane. Then, the airline is planning to resume commercial MAX flights from Miami on December 29th.
The Expert Investor Takeaway
As a natural reaction following the news, shares of Boeing rallied on Thursday. However, the report has more effects than the mere price action of the BA stock.
It represents the return of the leader of the airplane industry that could be seen as the phoenix, which is reborn from its ashes. Also, the orders signal the return to normality in a post COVID-19 era and that airlines are expecting a boom in flights and traveling in the next ten years.
It could be as simple as people are mad to travel again, but also that the COVID-19 impact in economies has been challenging, but nothing that the world can not recover from.
Finally, as Reuters reported, Boeing is under negotiations with Southwest, Delta, and Alaska Airlines for more airplanes.
On the Ryanair side, the agreement and the expected follow-up order is a signal that the low cost company is expecting an increase in businesses in the next years as well as it is moving fast to take profit of any development in the European economy in the following years.
Ryanair is also taking advantage of sharp discounts to gain fleet capacity and market share against other European low cost airlines such as EasyJet and Wizz Air with more competitive prices for the final user.
O'Leary said in the press release:
As soon as the COVID-19 virus recedes – and it likely will in 2021 with the rollout of multiple effective vaccines – Ryanair and our partner airports across Europe will – with these environmentally efficient aircraft – rapidly restore flights and schedules, recover lost traffic and help the nations of Europe recover their tourism industries, and get young people back to work across the cities, beaches and ski resorts of the European Union.
Boeing Stocks Analysis
Shares of Boeing are trading in consolidation mode on Friday after two days of significant gains following the 737 MAX developments. The unit rose to near 9-month highs around 242.00 dollars per share on Thursday.
Currently, BA is trading at 234.75 dollars per share, which is 1.0 percent down in the day. On the week, however, Boeing is ready to close its fifth positive period in a row.
Since the beginning of November, Boeing's share has gained around 90 dollars, or 65 percent per unit, from October close at 144.39 to current 235.00 dollars.
According to TheStreet Quant Ratings, Boeing Co is a stock to "sell" with no target price.
BOEING CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year.
On the other hand, the CFRA considers The Boeing Company a "four stars buy" stock with a 12-month target price of 248.00 dollars per share.
BA still has a lot of work to do before the MAX fleet is flying again globally and significant new orders are rolling in, so we continue to value shares in what we think is a conservative downside scenario. We assume the 2018 earnings peak is not recovered until 2027 (vs. base case 2025). This is moved in from 2029 in our prior valuation given the positive impact highly effective vaccines should have.
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