Boeing Co. (BA) announced that American Airlines, Inc., a wholly-owned subsidiary of AMR Corp. (AMR), will procure 35 Next-Generation 737-800s airplanes. This is a follow on order to the already existing order of 84 that Boeing began delivering in 2009. American Airlines currently expects the total number of 737-800s in its single-aisle fleet to be 195 by the end of 2012.
 
The order is part of American Airlines’ ongoing fleet renewal plan, replacing MD-80s with fuel-efficient Next-Generation 737s. The 737-800 is 35% more fuel efficient on a seat-mile basis than the MD-80s it will replace. Also, the 737-800s carry 150 passengers each as compared to 140 passengers carried by the MD-80s.
 
The commercial airliner market is showing gradual signs of improvement, and passenger traffic is expected to grow in the mid-single digits annually over the long term. Boeing, anticipating a hike in demand, increased the production capacity of its jetliners including the 737-800.
 
The improvement in the commercial market has also heightened the competition in the commercial air space. In addition to Airbus, Boeing also faces stiff competition from Canada’s Bombardier, China ‘s state-owned Comac, Russia’s Irkut and Brazil’s Embraer-Empresa Brasileira de A. (ERJ).
 
During the first quarter earnings call, Boeing provided earnings guidance of $3.50 per share to $3.80 per share for 2010, which includes a health care legislation charge of 20 cents per share. The Zacks Consensus Estimate for second-quarter, fiscal 2010 and fiscal 2011 are $1.01 per share, $3.88 per share and $4.91 per share, respectively. The company is slated to release its second-quarter 2010 numbers on July 28, 2010.
 
We believe the benefits from the improvement in passenger freight and passenger traffic are already priced in the current valuation. Hence, we maintain our Neutral rating and Zacks #3 Rank (Hold) on the stock.
 
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