Record-Breaking Order Puts Boeing in Hot Pursuit of Airbus

Aircraft-manufacturing giant Boeing (NYSE: BA  ) has just announced the largest commercial airline deal in its history, this fast on the heels of another other large aircraft order for the company just last month. The legendary aviation business is taking aircraft orders as fast as it can write them, but will it be enough to catch up to Airbus?

Feeling the LUV
The record order comes courtesy of Southwest Airlines (NYSE: LUV  ) , which has committed to purchasing 208 new aircraft. Of those single-aisle airliners, 150 will be Boeing's still-in-development 737 MAX aircraft and 58 will be the Next Generation 737, which is the current model.

Airlines around the world are asking for more fuel-efficient airliners, and have been flocking to Airbus's re-engined A320Neo. The MAX, like the Neo, will come with markedly more fuel-efficient engines, and will build on other advanced design groundwork laid by the Next Generation 737s.

A deal almost lost
Despite its long history with Boeing, Southwest considered going with the Neo, but decided on the MAX in order to maintain commonality with its existing fleet. Southwest flies only 737s, a shrewd operating move that allows for extraordinary efficiency in both aircraft maintenance and crew training.

Southwest flies more 737s than any other airline in the world, and will be the MAX "launch customer," i.e., the first airline to fly the MAX. It will take delivery of the first one when it enters service, which is expected to be in 2017.

Money not to be sneezed at
The price for the 208 aircraft will be $19 billion at list prices (although there is usually major discounting from list when all is said and done), topping the previous record-breaking deal for Boeing that was unveiled just last month at the Dubai Air Show. There, Emirates, the fast-growing Persian Gulf carrier, placed an order for 50 777 long-haul jets, which at the time set a record by value for the company of $18 billion at list pricing.

Catch me if you can
Airbus has booked orders for 1,196 Neos since the beginning of this year, a jet-powered pace. In addition to the Southwest order, Boeing has commitments from 12 other customers to buy about 750 MAX aircraft in total, but the airlines have yet to turn their plans into firm orders. The 12 customers include Indonesia's Lion Air and AMR's (NYSE: AMR  ) American Airlines.

Rob Stallard, an analyst at RBC Capital Markets, told Financial Times that the Southwest deal was "an important step" toward Boeing's goal of securing 1,000 orders for the MAX by mid-2012.

Warm up those rivet guns
Aside from this hot pursuit of Airbus in the single-aisle airliner market, business for Boeing looks to be good overall. Third-quarter results for Boeing were particularly encouraging:

  • Revenue grew a decent 4% year over year.
  • Net income shot up a staggering 31%.
  • Earnings per share jumped a very nice 30%, from $1.12 to $1.46, and the company raised guidance for the year from $4.30 to $4.40.
  • The company holds $9.2 billion in cash and marketable securities, providing strong liquidity.

More good news: The company has $332 billion in orders on backlog, up from $323 billion at the beginning of the quarter. That's a lot of rivets, flaps, and ailerons. So Boeing is looking good as a business -- but what about as an investment?

There's no such thing as too much business
The stock is trading for about $70 per share, with a P/E of just under 14. Boeing's true peer, Airbus, isn't listed on an American exchange, so let's look at some of Boeing's domestic (albeit more defense-oriented) peers for a stock comparison.

Lockheed Martin (NYSE: LMT  ) , Northrop Grumman (NYSE: NOC  ) , and General Dynamics (NYSE: GD  ) all currently have P/Es below 10, but these companies still aren't the best apple-to-apple comparisons as budget cut fears have beaten down the more pure-play defense stocks. United Technologies (NYSE: UTX  ) , however, is well-diversified beyond defense, like Boeing. And United Technologies' P/E is currently about 14, again like Boeing.

Will Boeing catch up to Airbus anytime soon? With the way these big airline orders are popping out of the woodwork lately, maybe. Does it matter? Probably not. For the moment, the large commercial aircraft manufacturing business is a duopoly, and both of these companies are racking up way more orders than they need to stay in business. But that's a good problem to have, isn't it?

The Foolish bottom line is that after almost 100 years, Boeing is still performing as business and as an investment. Of course, it's not the only stock built for the long haul. Learn about five long-term stocks handpicked by our top equity analysts and actually owned by The Motley Fool in this special free report: "5 Stocks The Motley Fool Owns -- And You Should, Too." To get your copy while it's still available, click here now.

Fool contributor and ex-flight instructor John Grgurich dreams he flew Boeing 737s and not Cessna-152s back in the day, but he owns no shares of any of the companies listed in this column. The Motley Fool owns shares of Lockheed Martin, General Dynamics, and Northrop Grumman. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has an absolutely scintillating disclosure policy.


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