Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Boeing Bags Its Russian Bear

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

For nearly a year, we've waited with bated breath, wondering whether Boeing (NYSE: BA  ) would take the bait, or bait the Russian bear. Now we've just learned that Russian carrier Rosavia will use Boeing planes to fill out its fleet.

Back in August, we discussed Rosavia's gambit to extract price concessions from Boeing by starting a bidding war between it and archrival Airbus. Borrowing a tactic previously employed by UAL (Nasdaq: UAUA  ) and Ryanair (Nasdaq: RYAAY  ) , the Russian airline holding company asked Boeing and Airbus to offer it cut-rate deals in exchange for playing a major role in the airline's fleet-building exercise. Specifically, Rosavia held out the promise of "50 firm orders for aircraft to be delivered between 2010 and 2016, plus an option for 15 more," plus the possibility of as many as 55 more plane orders being placed through 2020.

At the time, I argued that Boeing shouldn't take the bait. I thought Rosavia's stated intention of nabbing planes for under $50 million a pop meant Boeing would have to dive far below list price on its Boeing 737 offerings in order to snare the deal, crimping profit margins.

Now I'm not so sure.

When Russia hands you lemons, make lemonade
I'm still suspicious of the terms of this deal. While it's great to hear that Boeing beat Airbus to win the contract (even despite the Airbus's now-depressed-Euro prices), I still fear that the company may have sacrificed too much in profit margin to win the deal. But even if this deal turns out to be bad for Boeing, it could be very good for America, and for investors in Boeing's suppliers.

Companies from Honeywell (NYSE: HON  ) to United Tech (NYSE: UTX  ) to Spirit AeroSystems (NYSE: SPR  ) all supply parts for the 737. If these companies can hold the line on profit margins, there's no reason to believe that Boeing's mad dash for sales-at-any-cost would be anything but good news for them. Plus, more sales for Boeing suppliers almost certainly means more jobs for an American workforce that sorely needs them.

So while I'll reserve judgment on just how good this news is for Boeing itself, it does appear to be bad news for EADS/Airbus. Best of all, this looks like a great week to own shares of Boeing (suppliers).

Spirit AeroSystems Holdings is a Motley Fool Hidden Gems selection, but Fool contributor Rich Smith does not own shares of any company named above. Check out his latest stock recommendations on Motley Fool CAPS. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2010, at 12:14 AM, FBEditorial wrote:

    How can you "reserve judgement" when in the earlier paragraph you claim Boeing will have sacrificed margins to win the deal?

    And in any case, this deal has not been signed, sealed or delivered so the metrics are clearly still in flux.

  • Report this Comment On June 04, 2010, at 12:49 PM, TMFDitty wrote:

    @FBEditorial: I am being nice. The truth is that I believe the Russians required a lowball bid.

    As far as the precise metrics go, it's unlikely Boeing will reveal the price it bid, but you can surmise the scale of any margin compression from the next press release on Aeroflot. If Aeroflot tells Rosavia to seal a deal to buy Boeing jets for *it*, then Aeroflot's stated preference for Airbus planes, plus its public statement that it will only buy the Boeings if Rosavia is able to secure "below market prices," will give us an idea of whether Boeing gave a discount, and if so, how big.


Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1199614, ~/Articles/ArticleHandler.aspx, 10/24/2016 4:45:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:01 PM
BA $137.45 Up +1.82 +1.34%
Boeing CAPS Rating: ****
HON $109.26 Up +0.30 +0.28%
Honeywell Internat… CAPS Rating: ****
RYAAY $74.29 Up +0.92 +1.25%
Ryanair Holdings CAPS Rating: **
SPR $48.50 Up +0.33 +0.69%
Spirit AeroSystems… CAPS Rating: **
UAUA.DL $0.00 Down +0.00 +0.00%
UAL Corp CAPS Rating: *
UTX $99.52 Up +0.85 +0.86%
United Technologie… CAPS Rating: ****