On a week in which Boeing (NYSE:BA) news was dominated by Boeing's earnings news, the aerospace giant didn't let that little even get in the way of getting on with its business. To wit, on Thursday, just like every Thursday of every week, Boeing put out its usual update on plane orders received year to date.
Here's how those order numbers look today:
- 271 single-aisle 737s.
- 54 widebody 777s.
- 50 Dreamliner 787s.
- 47 Boeing 767s.
- Four 747s.
Tally 'em up, and that's 426 "gross" orders in all. Subtract 46 order cancellations year to date, and Boeing now has 380 net new orders through mid-July 2015.
How we got to here
If you tuned in last week for Boeing's previous order update, you'll note that the latest results show an increase of 51 gross plane orders, and also an increase of cancellations by two. Both of the cancellations related to 737s.
The new orders include the five Boeing 777 freighters ordered by EVA Airways already mentioned in our last column, and an additional 46 freighter versions of the Boeing 767, all ordered by FedEx (NYSE:FDX).
When you absolutely, positively, have to sell a 767 overnight ...
Incidentally, the 767 that was already on Boeing's order book before this latest update was also destined for FedEx. So in fact, every single 767 Boeing has sold this year, it sold to FedEx! And at a list price of $199.3 million each, that works out to $9.4 billion in 767 sales to FedEx this year.
Boeing's 55%-off sale
While FedEx's freighter order is undeniably good news for Boeing, there are a few caveats and provisos worth pointing out. Let's start with the price.
Now, $9.4 billion is a lot of money. According to data from S&P Capital IQ, it's nearly 16% of Boeing's annual revenue stream -- not a bad haul for just one contract. But according to Boeing's hometown paper, The Seattle Times, the actual price FedEx is likely to pay after "standard discounts" is probably closer to $4.2 billion. (Asked to comment on this guess, FedEx played coy, with company spokesman Jess Bunn admitting only that "the terms are very favorable" to FedEx.)
And that's not all. In a press release that came out around the time Boeing updated its order book, FedEx clarified that it actually placed orders for 50 freighters total last week. Not 46. Not 47.
Fifty freighters priced at $199.3 million each should be worth $10 billion to Boeing. So if the real purchase price for all those planes is just $4.2 billion, then the price discount Boeing gave FedEx is probably closer to 58%.
Boeing's buy 50, get 50 (almost) free sale
If that seems like a lot of money for Boeing to leave on the fold-down tray, then hold on to your seats -- because the discounts are just going to keep coming. Alongside the 50 firm orders for 767 freighters, you see, FedEx took out options to buy 50 more, and presumably at similar discounts. Depending on how you look at it, that could be another $4.2 billion in revenues coming down the runway for Boeing -- or another $5.8 billion in discounts going out the door.
The upshot for investors
When you get right down to it, this probably isn't cause for investors to worry. Everyone in the industry knows that airplane "list" prices are just a starting point for negotiations. Boeing's been giving customers discounts similar to (if perhaps not quite as generous) the one it just gave FedEx for years. Citing data from aviation consulting firm Avitas, for example, the Times estimates EVA's $1.5 billion order last week will be discounted 44% to just $840 million.
Still, that hasn't prevented the company from producing beaucoup profits -- $5.3 billion in net income over the past year. $6.8 billion in free cash flow. The fact that even after discounts, Boeing earnings enough profit to trade for a P/E of less than 20 (and a price-to-free cash flow ratio of just 14.4) is nothing short of marvelous.