Last week, Boeing (NYSE:BA) put out a press release stating that China's President Xi Jinping will tour the company's widebody factory in Everett, Wash., on September 23. According to Boeing Chairman Jim McNerney, "We're honored that President Xi will see our factory and meet the Boeing employees who worked to deliver a record 155 airplanes to China last year."
Rest assured, Boeing is not nearly as excited about giving a VIP tour of its factory as this press release implies. The tour itself is not important -- what makes this a big event is the likelihood that China will announce some major orders for Boeing aircraft in conjunction with the visit.
Boeing needs orders
Boeing is on pace to deliver a record 750-755 commercial airplanes in 2015. The company also has confirmed plans to increase production of its popular 737 and 787 aircraft families in the next few years, raising annual production to more than 900 planes by the end of the decade.
To sustain this unprecedented rate of production, Boeing needs to sign up lots of orders. Last year, it had no trouble at all, booking 1,432 orders. For 2015, Boeing has been projecting a book-to-bill ratio of around 1, meaning that for every airplane delivered, it would book a new order. That would keep Boeing's backlog stable and provide some comfort that its production increases will be sustainable.
However, with nearly three-quarters of 2015 in the books -- including the Paris Air Show, a major venue for big order announcements -- Boeing has only booked 447 net orders this year. That puts it more than 300 orders shy of reaching a book-to-bill ratio of 1. Boeing needs to bag some big orders in the next few months to close the gap.
China is a crucial market
China has become one of Boeing's most important markets recently, now representing more than 20% of its commercial airplane deliveries. However, Boeing's backlog of firm orders from Chinese carriers only totals 157 airplanes, according to company figures. This week's visit by President Xi should allow Boeing to rebuild its backlog of orders from China.
In June, Air China affiliate Shenzhen Airlines agreed to purchase 46 Boeing 737s, with deliveries starting next year. A month later, China Eastern Airlines disclosed plans to purchase 50 Boeing 737s. Both of these deals require official Chinese government approval to become firm orders. That approval will probably come this week.
It's also possible that President Xi will announce some orders during his visit that have not been reported previously. Boeing is particularly in need of orders for its 777 widebody jet to bridge the gap until the next-generation 777X becomes available in 2020.
Each of the three big government-owned Chinese airlines flies some Boeing 777s. Furthermore, President Xi is visiting the factory where Boeing assembles the 777 and 787 widebodies -- the 737 is built 30 miles away in Renton. Thus, it wouldn't be that surprising if some new widebody orders are announced.
Aside from the importance of Boeing snagging new orders this year, getting a slew of orders from China would be significant in light of slowing economic growth there. China is one of the key markets that Boeing is looking to for long-term growth. Investors need all the assurances they can get that China will continue to be a steady source of orders for Boeing.