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Boeing's Big Plane Sale: Not Now, but Soon

By Rich Smith - Jan 22, 2016 at 9:40AM

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The third week of the new year saw Boeing sell a plane. (Yes. One plane.)

Boeing sold just one plane last week. But Boeing 737 sales look set to take off. Image source: Boeing.

Boeing (BA 1.26%) made its second update on new orders received in January on Thursday. The news was...underwhelming.

After booking a six-plane order to Air China last week, all the Seattle planemaker could muster up as news in this third week of January was the sale of one single, solitary Boeing 787 to aircraft lessor Air Lease Corporation (NYSE: ALC). But stay tuned -- the big news is still coming down the pike.

Not now, but soon
Simultaneous with its 787-plane sale announcement Thursday, we've received two additional reports of plane sales agreements that Boeing has inked with counterparties -- but that apparently didn't finalize quite quickly enough to make it into Boeing's online tally of "firm" orders for last week.

In the first of these deals, United Airlines (UAL 1.73%) says it has agreed to buy 40 Boeing 737-700s for its fleet, turning away at the last minute from a plan to hand its business to Bombardier. The Canadian planemaker had been hoping to land a $3.2 billion deal to sell "CSeries" aircraft to United. Instead, all of that business is going to Boeing -- which also values 40 of its 737s at about $3.2 billion, according to published list prices.

Separately, Southwest Airlines (LUV 1.26%) says it has finalized terms on a purchase of 33 slightly larger Boeing 737-800 aircraft -- a deal first struck in December, but only made public last week. Reporting earnings on Thursday, Southwest noted that it's "accelerating" the retirement of its older Boeing 737-300 and 737-500 aircraft. The additional 737-800s will help to keep Southwest's all-Boeing air fleet at full strength.

What does this mean for Boeing?
That switches up the headlines on Boeing's big news of the week. Instead of the disappointing revelation that "Boeing sold just one plane," the happy news out of United and Southwest changes the headline to: "Hey! Guess what!? Boeing is about to sell 73 planes!" And yet, it's the subtext to the big news that should interest Boeing investors more.

Citing "industry sources," Reuters reports that United Airlines "likely paid well below half the $80.6 million catalog price for the Boeing 737-700s." This comes as something of a surprise.

According to Reuters, discounts of "40% or more" are actually pretty common when airlines buy large batches of aircraft from manufacturers. A discount to "below half," however, is steep enough to deserve special attention. Assuming Southwest was able to work a similar deal, then "below half" prices on 40 single-aisle 737-700s ($3.2 billion at list) and 33 larger 737-800s (coincidentally, also about $3.2 billion, list), means that the entirety of these big plane orders will actually only net Boeing a total of $3.2 billion in revenues -- max.

It gets an investor to wondering: After losing the airplane sales war to Airbus three years running, is Boeing now running scared? Starting off the year with two big planes sales will surely help Boeing recapture the sales crown from rival Airbus in 2016. But if the incremental sales come at the price of lower prices -- and weaker profit margins -- investors have to ask themselves:

Is it really worth the effort?

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 245 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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