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Boeing (BA) to Deliver 787-10 Jets to Emirates for $15.1B

Zacks

The Boeing Company BA recently sealed a deal for delivering 40 787-10 Dreamliners to Emirates — the largest airline in the Middle East. Notably, the aircraft giant received the order on the very first day of the Dubai Airshow.

Details of the Deal

Deliveries of these twin aisle jets are scheduled to commence from 2022, while the 40th jet of the lot is expected to be delivered by 2030. The purchase order, in addition to the 40 jets, comes with equipments related to the 787-10 fleet, with a total value of $15.1 billion as per the current list price.

Notably, Emirates will use some of these planes to replace its existing fleet of 777 jets, to maintain a young and efficient fleet; while the rest will boost the airline’s future network growth.


A Brief Note on 787-10 Dreamliner

Boeing’s 787-10 is the largest member of 787 Dreamliner family, which is 5.5 meters (18 ft) longer than the 787-9 model. It shares more than 95% commonality with its predecessors. It is also the fastest-selling twin-aisle airplane in history, which comes with low fuel use and operating costs.

Notably, the latest order from Emirates takes the total number of new 787 orders and commitments for Boeing this year to more than 180; and more than 210 orders and commitments for the 787-10 overall.

Benefits of the Deal

Emirates became the first and sole carrier to operate an all-Airbus A380 and Boeing 777 fleet in November 2016. Now, subsequent to signing of the latest deal, airlines management considers the new 787-10 fleet to strongly complement its existing fleet, thereby offering it more flexibility to operate in a wide range of destinations. Moreover, this new fleet will offer 25% better fuel efficiency per seat and emissions than the existing airplanes.

This in turn will boost Emirates’ strategy to expand its global route network.

On the other hand, according to the U.S. Department of Commerce formula, such a multi-billion dollar deal will support more than 75,000 direct and indirect U.S. jobs. Therefore, apart from boosting Boeing’s revenue growth, this deal will bolster the U.S. economy as a whole.

Our View

Boeing raised its 20-year forecast for jetliner demand by 3.6% at June’s Paris Air Show. Per its current outlook, the world will need 41,030 new planes, worth $6.1 trillion, between 2017 and 2036. Notably, while single-aisle jets are expected to be the major driver behind this demand growth, their twin-aisle counterparts are projected to witness a solid upward traction.

In this context, Boeing projects demand for 9,130 new twin-aisle planes in the 2017-2036 period. The company estimates that the total value of all wide-body planes (comprising small, medium or large) sold over the period will be $2.8 trillion compared with $3.2 trillion for the narrow-body variety.

It goes without saying that prospects for twin-aisle jet planes is impressive, with more airlines shifting to small and medium/large wide-body airplanes like Boeing’s 787 and 777X fleets. Boeing’s latest deal with Emirates is a bright instance for that.

It is imperative to mention here that although Boeing and Airbus Group EADSY dominate the commercial aerospace manufacturing market as major airlines worldwide uses their airplanes; the latter has been lagging behind the in terms of winning commercial orders lately.

According to BBC News, Emirates’ chairman said that the airline chose 787-10 over Airbus A350 fleet, which we believe reflects Boeing’s 787 fleets’ efficiency over its arch rivals’ twin-aisle fleet. In fact, while Emirates, is already the biggest customer for Boeing's 777 fleet, the latest order has raised the airline’s cost of purchase of Boeing aircraft to $90 billion. This reflects the long-term partnership that Emirates and Boeing shares and while the former is enhancing its network, we may expect Boeing to win more such deals for its commercial jets going ahead.

Price Performance

Share price of Boeing has surged 73.9% over the last 12 months, outperforming the Aerospace–Defense industry’s gain of 29.9%. This could be because the company’s strong balance sheet and cash flows which provide financial flexibility in matters of incremental dividend, ongoing share repurchases as well as earnings accretive acquisitions. The stock’s performance is better than that of General Dynamics Corporation GD and Lockheed Martin Corporation LMT, which missed the industry mark.

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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