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Boeing Lands a Blockbuster Sale -- That No One Has Heard About

By Rich Smith - Mar 30, 2015 at 9:43AM

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Airplanes? Pshaw. For Boeing, the real money is in helicopters! (At least, this week it is.)


Boeing's 787 was its hottest-selling plane this week. Photo: Boeing.

Boeing (BA -0.88%) got a surprise treat this week -- and it had nothing to do with airplanes.

On Thursday, the company released an update for 2015 aircraft orders placed through March 24. As of the report, Boeing had received a total of 85 "gross" plane orders this year from its customers. Here's the breakdown:

  • 70 single-aisle 737s
  • Seven larger 777s
  • Five 787 Dreamliners
  • Three 747 jumbo jets.

Minus cancellations (four 737s and a single 787), this leaves Boeing with a net order book of 80 commercial aircraft for the year. This includes two straight zero-order weeks, capped by Thursday's revelation that Boeing finally broke its losing streak by landing six orders in the past seven days -- one 737, a pair of 777s, and three 787s, all sold to "unidentified customer(s)."

What it means for investors
At Boeing's advertised list prices -- about $96 million for an "average" 737, $327 million for a 777, and $257 million for a 787 -- this past week's new orders promise to bring in as much as $1.5 billion in new revenue.

That sounds like great news. Financial data supersite S&P Capital IQ says Boeing earns an average operating profit margin of 9.4% on its commercial airplanes. And 9.4% of $1.5 billion means Boeing should earn about $140 million in profit (2.5% of Boeing's annual net profit) on these sales.

Don't count on it happening, though.

Airline industry website Leehamnews.com cautions that Boeing's "list prices ... have no relationship to what customers actually pay. Discounts of 25%-30% are common and really good customers ... have been known to get discounts of up to 60%." Other sources give wider ranges, positing discounts of 15% to as much as 50% across various models of airplane. Forbes magazine noted, for example, Boeing has been known to offer discounts of up to 48% for the 787 Dreamliner. All of this suggests the profits from the latest orders could be closer to $70 million than $140 million.

But now here's the big surprise: Boeing is about to win another contract that could be worth a lot more to the company.


But Boeing's big Chinook is an even bigger money maker for Boeing. Photo: Boeing.

Bigger profits for Boeing
On Monday, the U.S. Defense Security Cooperation Agency notified Congress of a pending weapons sale, in which Boeing will be the primary contractor. Specifically, the Netherlands wants to buy 17 CH-47F Chinook heavy-lift helicopters (plus assorted equipment, parts, training, and logistical support ) from Boeing, for a total price of $1.05 billion. The value of this contract, if Congress approves it, is much more certain than the "list prices" Boeing advertises for its commercial planes. (Worth noting: Congress has never rejected a DSCA-notified arms sale. Ever.)

The revenue from Boeing's sale of Chinooks to the Netherlands is more certain than those from its sale of commercial aircraft to "unidentified customer(s)." This defense revenue is also more profitable for Boeing, delivering a 9.6% operating profit margin, rather than 9.4%. Result: While the planes Boeing sold last recently will probably produce about $70 million in profit, the helicopters are almost certain to yield more than $100 million in profit for Boeing.

The upshot for investors? Seventy million, $100 million -- if these sales, commercial and military, keep adding up, pretty soon we're going to be talking about Boeing earning some real money. Yet few investors even know the DSCA exists, much less that Boeing is about to earn more money from the helicopter deal than from an entire week's worth of plane sales.

Except that now, you know.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 303 out of more than 75,000 rated members.

The Motley Fool has no position in any of the stocks mentioned. 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 a disclosure policy.

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