Boeing's Big Bet is Paying Off

Since its unveiling in August 2011, Boeing's (NYSE: BA  ) new 737 MAX airplane family has been the talk of the tarmac. Boeing boasts that its newest creation aligns cost-effectiveness, environmental efficiency, and consumer satisfaction in a trifecta of aeronautical innovation that will leave current and future competition in the dust. As the Farnborough International Airshow finishes up, orders for this single-aisle airplane family continue to pour in, pointing to clear skies ahead for the future of Boeing and its shareholders.

Sky-high savings
As I mentioned in a previous article, fuel costs have a large impact on an airline company's bottom line. According to Boeing, its 737 MAX reduces fuel use per seat by an additional 19% over current comparable planes, saving airlines around 1 million dollars per plane per year. This translates to reduced CO2 and NOx emissions, an increasingly necessary consideration, as carbon taxes pop up around the globe.

While fuel costs are paramount in the airline industry, maintenance is another important consideration. Combined, Boeing says the 737 MAX boasts an 8% lower cost per seat than a line-up of its competitors' yet-to-be-released airplanes (see: Airbus 320neo). Now that the worst of the recession is over (knock on wood), and airlines are reinvesting in new fleets, operating costs will play an important role in making sure these new purchases pay off.

Cutting costs is important, but customer satisfaction helps to boost top-line earnings and keep airlines in the good graces of consumers. In addition to more overhead storage, the 737 family claims 99.7% reliability for departing within 15 minutes of its scheduled time.  For those on the ground, you'll be happy to hear (or not hear) that the 737 MAX has also managed to reduce its noise footprint by 40% over previous models.

Can I take your order?
On July 12th, total orders for the 737 MAX exceeded 1,200 orders -- though not all are firm orders --from 18 customers. Even more significant, this newest boost has managed to push total orders for all 737 models past the 10,000 mark, making it the most purchased airplane family ever. Here's a quick rundown of a few buyers on Boeing's customer list:

  • Southwest Airlines (NYSE: LUV  ) -- The first airline to place a firm order reserved 150 airplanes in December 2011.
  • General Electric's (NYSE: GE  ) Capital Aviation Services and Air Lease Corporation -- Ordered a combined 175 planes, solidifying the 737 MAX's place in the aircraft leasing industry.
  • United Continental Holdings (NYSE: UAL  ) -- Ordered 100 737 MAX airplanes, increasing its overall fleet size by 15%.

Finally, it's important to note who isn't on Boeing's 737 MAX order list. Delta (NYSE: DAL  ) , with an aging fleet and one of the worst fuel efficiencies around, passed up the MAX family and ordered 100 737-900ERs in August 2011. While this will get Delta the planes more quickly, and have the range to fly any of Delta’s U.S. routes, it'll likely mean higher operating and fuel expenses in the future versus competitors operating the 737 MAX.

Boeing's big bang?
Historically, the airline industry has been a volatile place to invest, and Boeing has hardly been an exception to the rule. However, the new 737 MAX has the potential to drastically boost Boeing's earnings and solidify partnerships with airlines long overdue for a fleet upgrade. A leader in single-aisle airlines, Boeing is carving a fuel-efficient niche for itself just as oil prices start to take off again. With a 2.5% dividend yield, and a below-average P/E ratio of 12.4, now could be an excellent time to cash in on Boeing's promising future.

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Fool contributor Justin Loiseau loves window seats and owns shares of General Electric. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS @TMFJLo.

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Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On July 13, 2012, at 8:43 PM, funspirit wrote:

    good information in general.

    I wish you hadnt put this line in though.

    "Now that the worst of the recession is over (knock on wood), and airlines are reinvesting in new fleets, operating costs will play an important role in making sure these new purchases pay off."

    Since WHEN doesn't ROI factor HUGELY into ANY purchase?

    cheers

  • Report this Comment On July 13, 2012, at 9:49 PM, chicgoods124 wrote:

    welcome to our store: ta.gg/5qp

  • Report this Comment On July 14, 2012, at 8:25 AM, Peeturd wrote:

    Look at (sub) suppliers for the planes - AIN is going to be a huge benifactor

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