Boeing’s Vying for $15B United Order, Could Lift $90 Stock Price

by Martin Rivers
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Boeing (NYSE:BA) is in an advanced stage of negotiations with United Continental (NYSE:UAL) over an order for up to 180 narrowbody jets, according to Reuters. [1] The aircraft manufacturer is competing with Airbus for the deal – worth about $15 billion at list prices – and analysts speculate that a split-order is the most likely outcome. If Boeing manages to secure exclusivity, however, it would be the latest in a string of high-profile coups for the manufacturer, continuing a trend which could send its global market share above 40%.

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Downturn Fails to Dent Demand for New Jets

Ongoing economic uncertainty may have forced airlines to cut capacity in recent months, but for aircraft manufacturers Boeing and Airbus there is little evidence of a slowdown in demand. High oil prices have piqued customers’ appetite for more fuel-efficient fleets, leading to several large scale deals throughout 2012 – including a 460-plane order by American Airlines (NYSE:AMR). In the last month alone, Boeing has secured contracts to deliver 50 long-range Boeing 777s to UAE-based Emirates Airlines, and 230 short-haul jets to Indonesian carrier Lion Air. Each deal is worth about $20 billion at list prices, and they include options for several hundred more jets.

According to its own conservative estimate, Boeing expects global demand for commercial aircraft to total 33,500 units between 2011 and 2030. [2] Having delivered 1,270 commercial aircraft last year, we believe the manufacturer will capitalize on this growing demand for fuel-efficient models by raising output steadily between now and at least 2018. Our chart below illustrates how its accelerating production line activity contributes to a Trefis price estimate of $90.

Defending Market Share Key to Long-Term Growth

While aircraft deliveries look certain to rise, Boeing’s market share appears somewhat more precarious. In addition to rising competition from Brazilian, Canadian, Chinese and Russian manufacturers, Boeing remains locked in a head-to-head struggle with European plane-maker Airbus for dominance in the long-haul and short-haul sectors.

Both manufacturers have suffered setbacks in the long-haul sector – with the 787 Dreamliner delivering three years late, and the A350 program now delayed by six months – which makes securing a lead in the short-haul market all the more crucial. Given that United operates an Airbus fleet whereas Continental flies Boeing, analysts will be watching closely to see who the newly merged entity favors in its upcoming order. Any advantage to Boeing will set the US manufacturer well on its way to reaching 40% global market share by 2014.

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This article was submitted as part of our Trefis Contributors program. Email us at contributors@trefis.com if you’re interested in participating.

Notes:
  1. Jetmakers battle for United order, Reuters, Nov 23 2011 []
  2. Boeing Projects $4 Trillion Market for 33500 New Airplanes Over Next 20 Years, Boeing, June 16 2011 []
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