Lately, the news has not been great for Boeing (NYSE:BA). With two deadly airplane crashes traced back to its new 737 MAX line, it would be easy to see how the market would abandon Boeing altogether. However, Boeing's fortunes took a decided turn upward as an older deal between itself and Turkish carrier SunExpress got even better for Boeing. While at the recent Dubai Airshow, SunExpress exercised an option that was part of an earlier deal to purchase a further 10 737 MAX 8 planes from Boeing, which means an extra $1.2 billion in sales.
A Bank Back to Profitability for Boeing
For those not familiar, SunExpress runs non-stop service throughout the Mediterranean region, which means elements of Europe, the Red Sea, the Black Sea, and even North Africa. SunExpress originally placed the order back in 2014, and at the time, the 737 MAX line had realized almost 1,800 total orders for Boeing, representing a substantial sum.
The markets took the expanded order as a welcome sign as well, with Boeing shares up 3.11 to 374.70 as of this writing, well off Friday's close of 371.59. What's more, the markets may have picked up on IAG's recent move in this sector, as the company that owned British Airways offered up a letter of intent to pick up 200 737 MAX planes back in June.
A Vote of Confidence, With Some Caveats
However, the expanded order didn't come without some strings attached. Word from SunExpress CEO Jens Bischof noted that SunExpress valued Boeing's contribution for a range of reasons—including an excellent working relationship with Boeing itself and the individual advantages of the 737 MAX line like its economical operations and its environmental benefits—SunExpress would be watching this one carefully. Bischof pointed out that the whole plan to use the 737 MAX would depend wholly on the “...undisputed airworthiness...” of the plane, as backed up by “...all relevant authorities....”
The good news for Boeing here is not just the expanded orders, but that SunExpress is willing to pull the trigger. Reports note that SunExpress' shareholders support ordering the 737 MAX, which means the company isn't likely to suffer any significant loss in its stock price as a result.
A Halo Effect in the Making?
It would be easy to brush aside the news of SunExpress' expanded order, saying that SunExpress isn't exactly a household name, and as far as most travelers are concerned, the name “Boeing” may be sending chills down some travelers' spines right now. However, it's just as easy to say that this is how comebacks get started.
We've got SunExpress exercising an option for more aircraft that it set up back in 2014, and this despite the two fatal crashes that took place this year. That's a real show of faith in the company's operations. Throw that in with the order from British Airways's parent company, and the outlook only seems that much brighter. Granted, there is a degree of separation here between the 737 MAX 8 and the other variants in the series, there's still plenty of interest in both Boeing and the 737 MAX line.
While two fatal crashes in one year traced back to one particular aircraft are a major red flag, reports suggest there were as many as 387 planes delivered as of October 2019. That's a failure rate a little higher than half a percent. Admittedly, no one wants to take the chance that they'll be next, but the combination of Boeing's quick response and the low overall failure rate—coupled with Boeing's successful track record going back better than a century—has likely left airlines ready to continue considering Boeing.
That's good news for Boeing and its investors; the share prices are down somewhat from their 52-week highs of 446.01, but share value has hardly cratered. Boeing's dividend is up four-fold from six years ago, and has held for all of 2019. There's a lot to like about Boeing, who has demonstrated the value of a rapid response and transparency when problems do strike.
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