Aviation Week In Review: Boeing and GE

In the past week, Boeing (NYSE:BA) received an order for 100 737 MAX 200s from Ryan Air. Separately, GE Aviation formed a joint venture with Turbocoating SPA of Italy to produce thermal coatings for Ceramix Matrix Composite (CMC) components used in jet engines.

Boeing

On Monday, December 1, Boeing received an order for 100 737 MAX 200s from Ryan Air. ^[1] At a list price of $107 million per airplane, this order translates to business worth $10.7 billion for Boeing. ^[2] The 737 MAX 200 is the high density version of the company’s 737 MAX 8, which seats about 175 passengers in a single class cabin configuration. The 737 MAX 200, on the other hand, can seat up to 200 passengers and has been named after its seating capacity. Boeing launched this version of the MAX 8 in September this year, in response to the demand from low-cost carriers (LCCs). LCCs like Southwest (NYSE:LUV) and Ryan Air like to maximize the number of on-board seats, and Boeing’s 737 MAX 200 will allow these carriers to do so, growing revenue potential per airplane and improving fuel efficiency per seat.

Importantly, this large order from Ryan Air allows Boeing’s 737 MAX to close the gap with Airbus’ A320 neo, which has obtained firm orders for 3,124 airplanes since its launch in 2010. ^[3] In comparison, the Boeing 737 MAX has obtained orders for slightly over 2,550 airplanes, including this latest one from Ryan Air. ^[4] We figure orders for the 737 MAX lag behind those for the A320 neo as the latter was launched by Airbus a full year before Boeing launched the 737 MAX. Gains from that launch lead are still accruing to Airbus, positioning its A320 neo in lead in terms of total orders. However, 737 MAX’s steadily growing order book will play a key role in allowing Boeing to retain its share in the single-aisle airplane segment of the global commercial airplane market.

– We currently have a stock price estimate of $136 for Boeing, marginally above its current market price.

– Boeing’s stock has fallen by about 1% over the past week.

– We currently estimate Boeing to post earnings of $8.21 per share in 2014, compared with its mean consensus earnings estimate of $8.36 per share.

See our complete analysis of Boeing here

General Electric

Separately, GE (NYSE:GE) has formed a 50/50 joint venture (JV) with Turbocoating SPA of Italy. ^[5] This JV will provide thermal barrier coatings for CMC components used in jet engines. The coatings from this JV will be supplied for LEAP engines, manufactured by CFM International, which is a 50/50 joint venture between GE Aviation and Snecma of France. LEAP is the first commercial jet engine that uses heat-resistant CMCs in the turbine section. These light-weight CMCs weigh significantly less than metal alloys that have been traditionally used in the turbine section of jet engines. As a result, the LEAP engine weighs considerably less, providing higher fuel efficiency. These engines are the key driver behind the higher fuel efficiency promised by next generation single-aisle airplanes of both Boeing and Airbus – Boeing 737MAX and Airbus A320neo.

The contrasting routes taken by GE Aviation and Snecma on the one hand, and Pratt & Whitney on the other hand, to make their jet engines more fuel efficient are quite interesting. While GE Avation and Snecma have resorted to making their engines from new material that weighs less and can burn fuel at higher temperatures. Pratt & Whitney has introduced a gear in its engine (Geared Turbo Fan engine) that improves fuel efficiency. However, GE Aviaiton/Snecma’s LEAP has been picked by both Boeing and Airbus for their next generation single-aisle airplanes, while Pratt & Whitney’s GTF has been picked by only Airbus for its A320 neo (the A320 neo allows airlines to choose between CFM’s LEAP engine and Pratt & Whitney’s GTF engine).

The Airbus A320 neo is set to enter service late next year and Boeing 737 MAX is expected to enter service in 2017. So, as CFM International ramps up production of the LEAP engine in coming years, this newly formed coating JV will enable GE to exercise greater control over its supply chain. We figure this increased control over supply chain is important as GE Aviation will derive a growing portion of its sales from the LEAP engine.

– We currently have a stock price estimate of $28 for GE, around 5% ahead of its current market price.

– GE’s stock has fallen by about 3% in the past week.

– We currently estimate GE to post earnings of $1.69 per share in 2014, compared with its mean consensus earnings estimate of $1.67 per share.

See our complete analysis of GE here

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1. Boeing, Ryanair Finalize Order for 100 737 MAX 200s, December 1 2014, www.boeing.com [↩]
2. Boeing airplane list prices, December 5 2014, www.boeing.com [↩]
3. Airbus A320neo’s orders, November 10 2014, www.wikipedia.com [↩]
4. Boeing’s airplane orders through November 2014, December 5 2014, www.boeing.com [↩]
5. GE Aviation and Turbocoating SPA form coating joint venture, November 24 2014, www.geaviation.com [↩]