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Boeing Business Strengthens

Every month, AeroAnalysis covers the orders and deliveries for Boeing (NYSE:BA) and Airbus (OTCPK:EADSY) (OTCPK:EADSF). Now, there’s a lot more than just orders and deliveries. Some subjects are worthy of more detailed analysis and some are not. The subjects that are not are not necessarily unimportant. Therefore, AeroAnalysis has been running a monthly series that bundles some of the most interesting news items that do not justify a separate article or deserve to be mentioned again. You can read the June report here. In this report, some news items from July will be highlighted.

Share prices in July

BA data by YCharts

In July, Boeing’s shares gained 6.2% compared to a 6% loss a month earlier. Boeing shares partly made up for the loss a month early and outperformed the Dow Jones, which gained almost 5%.

During the month Boeing shares were on the rise, probably helped by what seemed to be easing trade tensions. That is a dynamic that is likely going to apply downward as well as upward pressure to Boeing’s share prices in the future as well. During the month, Boeing presented its second-quarter results. The market initially did not seem to be pleased with the results, putting share prices of the world’s biggest jet maker several percent lower. In an earnings analysis, I explained why the initial disappointment was not justified.

A look at some price target announcements in July:

  • Canaccord Genuity reiterated its Hold rating for Boeing with a $350 price target.
  • Godlman Sachs Group set a price target of $375.
  • Cowen reiterated its Buy rating for Boeing with a $430 price target.
  • UBS maintained its Neutral rating and hiked the price target from $325 to $357.
  • Credit Suisse Group set a $455 price target and maintained its Buy rating.
  • JPMorgan Chase Co. (NYSE:JPM) set a $400 price target and maintained its Buy rating.
  • Jefferies reiterated its Buy rating with a $410 price target.

Analyst coverages reflected positive reception of Boeing’s earnings. There are some Hold and Neutral ratings here and there, which might be there because of the trade tensions between the US and China.

Commercial Airplanes News

Source: Pinterest

With the Farnborough International Airshow taking place in July, there have been a lot of order announcements. We don’t want to go in detail on those orders in this monthly news overview, because we have covered the order news extensively during and shortly after the airshow. You can find an overview of the orders news in a separate report along with links to the daily reports.

One thing from the airshow that we do want to address is the market outlook. Boeing has forecast demand for 42,730 deliveries valued $6.3 trillion. The total market including services is valued at $15 trillion for the coming 20 years. So overall the future looks bright for Boeing and its peers, although we did observe that Boeing revised its demand forecast for widebody aircraft downward. At the Oshkosh Airshow, Boeing provided its demand forecast for pilots. The jet maker expects demand for 790,000 pilots in the coming 20 years. It already is quite hard to find enough capable pilots, so for jet makers there lies a task in simplifying the flight deck and even thinking about autonomous systems.

The Boeing 797 remains a concept of interest, but we noticed that Boeing is approaching the matter more cautiously than it did earlier and a launch decision is not expected until 2019. There have been rumors that Boeing would be looking at a metal fuselage to reduce costs, but Boeing denied this.

The biggest news of the month was that Boeing and Embraer (NYSE:ERJ) announced they have signed a Memorandum of Understanding to establish a strategic partnership that positions both companies to accelerate growth in global aerospace markets.

The non-binding agreement proposes the formation of a joint venture comprising the commercial aircraft and services business of Embraer that would strategically align with Boeing’s commercial development, production, marketing and lifecycle services operations. Under the terms of the agreement, Boeing will hold an 80 percent ownership stake in the joint venture and Embraer will own the remaining 20 percent stake. The transaction is expected to close by the end of 2019 and be accretive to Boeing’s business in 2020, but we do have to point out that we think there still are many hurdles to be cleared.

Services And Investments News

Source: The Boeing Company

During the Farnborough International Airshow, Boeing announced $2.1B worth of services contracts:

  • Atlas Air (NASDAQ:AAWW) signed an agreement for 20 Landing Gear Exchanges for its 747-8 fleet. Through the program, operators receive overhauled and certified landing gear from an exchange pool maintained by Boeing, with stocked components and supporting parts shipping within 24 hours.
  • Emirates signed an agreement to use the Optimized Maintenance Program (OMP) for a fleet of 150 777-300ER (Extended Range), 777-200LR and 777-300 aircraft, representing the largest 777 fleet in the world with an OMP. OMP, a Boeing AnalytX-powered product, delivers tremendous value by providing customized maintenance programs.
  • EVA Airways signed an agreement for a number of key products, including Component Services for its 787 fleet and quick engine change solutions. With Component Services, Boeing and its partners own, manage and maintain a global exchange pool inventory for convenient access. It also renewed Jeppesen’s charting and electronic flight bag products for 10 years – a testament to the tool’s ability to improve navigation and flight operations across the fleet.
  • Hawaiian Airlines signed an agreement for EFB services across its Boeing 717, 767 and Airbus A330 and A321 fleet, which will enhance navigation and situational awareness and simplify preparation and in-flight procedures across the fleet.
  • Malindo Air has signed a long-term partnership agreement with Jeppesen to offer dispatcher training services at its operations center in Kuala Lumpur, Malaysia. The program, open to students across the aviation market, provides the foundation for multiple aviation career opportunities available with a dispatcher license.
  • Okay Airlines of China signed on to use Airplane Health Management (AHM) for its 737 MAX fleet. About 65 percent of all 737 MAX airplanes delivered so far are enrolled in Boeing AHM, which improves operations using predictive analytics supporting maintenance and engineering.
  • Primera Air will hold a signing ceremony for a significant services order Tuesday, July 17, at 1:45 p.m.
  • The Royal Netherlands Air Force has signed an agreement for Boeing to provide Performance-Based Logistics support for its fleet of AH-64 Apache and CH-47 Chinook helicopters. The five-year agreement is designed to combine Dutch Chinook and Apache support services into one integrated and efficient customer support program. This agreement was formally signed at the Royal International Air Tattoo show on Saturday, July 14.
  • The United States Air Force awarded Boeing a contract to provide crew instruction and operate, sustain, modify and upgrade the C-17 Aircrew and Maintenance Training Systems. The firm-fixed price award has a contract period up to 6.5 years and a potential total value of $986 million.
  • The U.S. Air Force awarded Boeing a four-year sole-source contract to repair, support, configure and provide parts obsolescence management for F-15 radars. Support includes Boeing field service representatives embedded into each F-15 flying squadron throughout the Combat Air Forces and sent worldwide wherever needed. Boeing also will provide engineering, customer training, system analysis and integration of all radar types throughout the U.S. Air Force F-15 fleet.
  • WestJet (OTC:WJAFF) became the 100th customer to sign on for Airplane Health Management. WestJet will use the Boeing’s AnalytX-powered product to provide predictive analytics for its 787 fleet.
  • Xiamen Airlines will hold a signing ceremony for a key digital order on Tuesday, July 17, at 2:15.
  • Ukraine’s ANTONOV signed an agreement with Aviall, including an intent to support the production of their newest aircraft program, the AN-1X8. Aviall will manage supply chain procurement for ANTONOV production, including logistics and forward stocking concepts, helping to fulfill orders of this aircraft program and further aftermarket support.
  • International WaterGuard signed a ten-year exclusive distribution agreement with Aviall for lavatory water heaters which fit Boeing 737, 747, 767 and 777 fleets. Canada-based IWG has been supplying potable water system components to the aircraft industry for over 30 years.
  • Cargolux has signed an agreement for Aviall parts support. The arrangement allows Cargolux to continue operating its 747-400F fleet by meeting engine induction needs for up to 33 engine refurbishment shop visits through cost-effective operations.

Boeing also did not sit still with its investments in some key areas like autonomous vehicles, 3D printing and drones; announced it is collaborating with artificial intelligence technology leader, SparkCognition, to deliver unmanned aircraft system traffic management solutions.

Boeing and SparkCognition will use artificial intelligence and blockchain technologies to track unmanned air vehicles in flight and allocate traffic corridors and routes to ensure safe, secure transportation. Through the collaboration, they will also provide a standardized programming interface to support package delivery, industrial inspection and other commercial applications. Boeing HorizonX Ventures previously invested in SparkCognition to support its development of a cognitive, data-driven analytics platform for the safety, security and reliability of data technology.

Defense News

Source: The Boeing Company

In its second-quarter report, Boeing recognized another charge related to the Boeing KC-46A Tanker program. The charge was definitely disappointing, since Boeing gave the impression that it was catching up nicely on the program and created a lot of positive momentum surrounding the program. The charge that it recognized during the quarter is one the company likely expected and tried to cover with the positive momentum it created. It is part of Boeing’s PR machine at work, but in the end all the positivity created does not fit the need to recognize yet another charge.

In July, Boeing and the U.S Air Force achieved a major KC-46 tanker program milestone, completing all flight testing required for first delivery. The KC-46 team concluded both its Military Type Certification testing and receiver certification testing with KC-135, F-16 and C-17 aircraft.

“This is a significant achievement for the Boeing-Air Force team and continues us on our path to first delivery in October,” said Mike Gibbons, Boeing KC-46A tanker vice president and program manager. “Great teamwork all around!”

Receiver certification, which began in April, was conducted from Boeing Field in Seattle and Edwards Air Force Base, California. As part of the testing, KC-46 and receiver aircraft flew at different airspeeds, altitudes and configurations to ensure compatibility and performance throughout the refueling envelope of each receiver.

Receiver certification testing of A-10 and KC-46 has also begun, with final certification of A-10, F/A-18, KC-46, F-15 and B-52 to be completed prior to the start of Initial Operational Test Evaluation testing.

“Our main focus now is obtaining the Supplemental Type Certificate from the Federal Aviation Administration as well as the formal Military Type Certification from the U.S. Air Force,” Gibbons said.

The KC-46 test team completed STC flight testing in April and is now working through associated paperwork prior to STC award.

Boeing is still progressing well with international sales and fulfilling their delivery requirement to foreign customers. Boeing completed the first flights with the Apache and Chinook helicopter for India. India will ultimately receive 22 Apache helicopters and 15 Chinooks.

During the month, Boeing received a $139.8 million contract to provide four MH-47G Block II Chinook helicopters to the U.S. Army Special Operations Aviation Command. These helicopters mark the start of a Block II production run expected to extend into the late 2020s.

The Army has 69 MH-47G Chinook helicopters. Concurrent with the MH-47G enhancements, Boeing is developing a Block II configuration for the U.S. Army CH-47F Chinook.

The biggest contract came for the Bell Boeing Joint Program Office. The joint office was awarded a $4.2B modification to manufacture and deliver 39 CMV-22B aircraft for the Navy; 14 MV-22B aircraft for the Marine Corps; one CV-22B for the Air Force; and four MV-22B aircraft for the government of Japan.

During the month, Boeing also received a $3.9B contract for modification and testing of two aircraft that will be used as the Air Force One starting in 2024.

Conclusion

Boeing share prices increased in July, outperforming the Dow Jones Index. Overall, we are seeing the company booking good earnings, so we are not worried about earnings at the moment and the company is enjoying some positive coverage by analysts. However, the trade dispute between the US and China as well as the EU is not something that would have any positive impact on Boeing as a company or the company’s share prices. So as the trade war takes shape and makes headlines, Boeing’s share prices are a bit more volatile.

Boeing continues to expand its customer base for MRO capabilities and data analytics and going forward, that is going to add up as more and more aircraft are being delivered with an analytics solution. On Defense, Boeing has cleared an important milestone on the tanker program and continues progressing well on selling and fulfilling delivery requirement for rotorcraft.

Overall, we continue to see positives in all parts of Boeing’s business and the company continues to invest in start-ups that can provide cost-saving technologies or enablers in the future. We view any pressure on Boeing’s share prices arising from trade concerns as an opportunity to add to existing positions.

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Disclosure: I am/we are long BA, EADSF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.