Boeing's (NYSE:BA) factory in Everett, Wash., recently played host to a special visitor: Chinese President Hu Jintao. The president was a big hit at the plant because he promised a "bright future" for the partnership between Boeing and China, which certainly means lots more orders for the aerospace giant from Chinese clients. It's hard to ignore such a positive signal from Hu, but investors should also be paying attention to a more concrete positive sign here at home.
Southwest Airlines (NYSE:LUV) revealed Thursday that it will convert its options to buy 79 737s from Boeing into orders. It's a deal worth $4.5 billion that will have the manufacturer delivering planes to Southwest through 2012. This single order itself is of course important, but what is more significant is the long-term relationship Boeing is establishing with a company that arguably will dominate the future of American commercial aviation.
Southwest reported its first-quarter numbers Thursday, and the results were again impressive. The company managed to increase its earnings by 3.4% to $61 million even after a massive 80% jump in fuel expenses. With rivals like Continental (NYSE:CAH) continuing to spill red ink, Southwest's Boeing order shows that the discount airline will continue to capitalize on competitors' weakness by expanding.
And that expansion is increasingly looking like it will go beyond U.S. borders. The Financial Times reports that Southwest has advanced its planning to begin international flights with partner ATA. An agreement between the two airlines calls for Southwest to market and support international flights by ATA by the end of 2009. Lucrative international flights remain the domain of legacy carriers, which increasingly rely on such routes to compensate for ground lost domestically to discount players.
Southwest's expansion into the international arena appears almost inevitable. Of course, making the jump to cross-border flights will require larger planes. Given that Southwest and ATA already exclusively fly Boeing jets, and the fuel-efficient 787 is expected to go into service a year before the Southwest-ATA international flight partnership is to launch, the aircraft maker looks to be in a good spot indeed.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
