Please ensure Javascript is enabled for purposes of website accessibility

Why Boeing Stock Is Up Today

By Lou Whiteman - Mar 11, 2021 at 11:39AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It looks like Boeing is going to win the order it could least afford to lose.

What happened

Shares of Boeing (BA 4.64%) gained nearly 5% on Thursday morning following a report that the company is close to winning what could be a massive order from Southwest Airlines (LUV 6.01%). It's an order Boeing couldn't afford to lose, and investors are understandably excited it might finally be done.

So what

Southwest has been a Boeing customer since day one, for most of its history exclusively flying 737s. But earlier this year reports surfaced that the airline wasn't completely pleased with what Boeing and engine partner General Electric (GE 3.33%) were offering to replace its 1990s-era 737-700 jets, opening the door for Airbus (EADSY 3.88%) to offer its A220-300.

A Boeing 737 in Southwest colors.

Image source: Southwest Airlines.

An Airbus win here would have been a major financial and symbolic setback for Boeing. Southwest could order as many as 300 new planes to replace its aging 737-700s, at a list price of more than $100 million apiece. And Southwest is so closely linked with the 737 that its endorsement of the A220 would likely open doors for Airbus at a lot of other carriers.

But the deal was always thought to be Boeing's to lose, and the company has apparently found a way to get it done. Reuters reported late Wednesday that Southwest is close to an order of Boeing 737 MAX 7 jets, initially only a few dozen planes but with "potentially significant" options.

Now what

The importance of this contract to Boeing can't be overstated. With airlines struggling to recover from the pandemic and focused mostly on domestic routes right now, smaller planes like the ones Southwest is looking to buy are likely to account for most of the orders over the next few years.

Boeing last April walked away from a deal with Embraer due to the pandemic that would have given the company a more natural rival to the A220. The 737 MAX 7 is an imperfect substitute. If it was deemed not good enough by one of Boeing's most loyal customers, it would have signaled tough times ahead for Boeing's sales team.

As it is, this deal isn't enough to make me want to buy Boeing stock right now. After a turbulent few years the company is on the mend, but given the health of the airlines the commercial aerospace cycle is likely to take longer than some believe to take off.

For now, there are better ways to invest in a potential post-pandemic aerospace recovery.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
BA
$127.73 (4.64%) $5.67
General Electric Company Stock Quote
General Electric Company
GE
$77.01 (3.33%) $2.48
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
LUV
$45.00 (6.01%) $2.55
Airbus Stock Quote
Airbus
EADSY
$29.21 (3.88%) $1.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.