Boeing's Bet Makes for an Intriguing Airline Play

While Boeing (NYSE: BA  ) snares headlines at this week's Farnborough International Airshow in the United Kingdom, shares of Southwest Airlines (NYSE: LUV  ) have dipped below double-digits yet again.

You're making a mistake, sellers. But to know why, you need to read the fine print of Boeing's news.

Hello, MAX
We'll get to the little details in a minute. First, let's cover the broad strokes. In a press release issued Tuesday, Boeing expressed confidence that it would end the year with "1,000 firm orders" for the 737 MAX. But with the stock down more than 3% over the past week and nearly 2.5% year-to-date, Boeing isn't getting any respect for what could be. Investors have been burned too often betting on anything related to the airline business.

And yet there's as much to like about the MAX as there is the 787 Dreamliner, which is due to join United Continental's (NYSE: UAL  ) fleet in September. Both aircraft are touted for their fuel efficiency. In the case of the MAX, Boeing says a lower weight and special winglets for boosting fuel efficiency should result in an 8%-per-seat operating cost advantage over Airbus' equivalent jet, the A320 neo.

The fine print
Naturally, Southwest -- whose fleet consists entirely of a mix of old and new Boeing 737 models -- became the MAX's "Launch Customer" in December with 150 firm orders for the aircraft.

What drove the buy? An official statement from Southwest CEO Gary Kelly, issued at the time of the announcement, referred to the need to "become more fuel efficient and environmentally friendly," which, of course, sounds great.

But after reading the MAX specifications Boeing provided in this week's press release, I think there's another reason: range. All three initial models will fly at least 3,500 nautical miles, more than enough to cover a coast-to-coast passenger flight.

To be fair, Boeing isn't expected to deliver the MAX before 2017, and we know from its history developing the 787 that the company can't exactly be relied upon to be timely.

Nevertheless, when they do arrive, it's possible that we'll begin to see Southwest competing for long-haul routes that, right now, are the bread-and-butter of legacy carriers such as Delta and United Continental.

Buckle up
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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home, portfolio holdings, Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

Motley Fool newsletter services have recommended buying shares of Southwest Airlines. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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