New order for 737 MAX
On June 18, Boeing (BA) won its first order for the troubled 737 MAX jets since they were grounded in mid-March. On the second day of the Paris Air Show, International Consolidated Airlines Group (or IAG), the parent company of British Airways, signed a letter of intent to purchase 200 Boeing 737 MAX planes.
Boeing marked its presence with a bang on the second day of the Paris Air Show after a very disappointing first day when it hadn’t recorded a single order for any aircraft model. On the other hand, arch-rival Airbus had booked 123 orders on the first day.
IAG intends to buy two versions of the jet: the 737 MAX 8, which accommodates 178 passengers in a two-class configuration and the 737 MAX 10, which seats up to 230 passengers. However, the company has not disclosed the actual split between the two models. The deal is valued at a whopping $24 billion.
This is the first time that IAG has signed a deal to buy a single-aisle jet from Boeing. The company usually buys wide-body two-aisle jets from Boeing to fulfill its needs for smaller single-aisle planes from the European planemaker Airbus.
Therefore, it is considered to be a success for Boeing that IAG is now relying on the former for its smaller jet requirements. Earlier this year, IAG had committed to buy 42 Boeing 777X jets, which are valued at $18.6 billion at list price.
Deal to help regain trust
Boeing has been facing worldwide grounding of its 737 MAX series planes after two deadly crashes within five months in which 346 people lost their lives. Boeing is trying hard to fix the software glitch in the flight control systems, which according to investigations caused the two deadly accidents.
Since its grounding, orders for 737 MAX have frozen. Boeing is working with regulators to fix the problem and restore customers’ confidence. The latest deal with IAG may help Boeing regain customers as well as passengers’ trust and may gain more orders for 737 MAX series planes.
Following the announcement of the IAG deal, Boeing stock soared 5.4% yesterday. The stock has gained 16% YTD but has underperformed the returns of the iShares U.S. Aerospace & Defense ETF (ITA), which is up 22.5%. The ETF invests in companies that are engaged in manufacturing, assembling, and distribution of aerospace and defense equipment.
Boeing’s YTD gain has also remained lower than the returns of the majority of its peers in the aerospace and defense sector. United Technologies (UTX), Lockheed Martin (LMT), and L3 Technologies (LLL) are up 18.9%, 35%, and 46.4%, respectively.