On the day following The Boeing Company’s (BA) announcement of a hike in the production rate, the company received a large order of 50 new Boeing 737 Next Generation airplanes from Russian Technologies, a Russian state-owned company, for $3.7 billion. The airplanes will then be leased to Russia’s biggest airline, Aeroflot.
 
Russian Technologies will transfer its airline assets to Aeroflot in exchange for a stake in the airline. The Russian government holds a 51.2% stake in Aeroflot.
                                                                                                              
Russian Technologies has an option to purchase an additional 35 jetliners from Boeing in future.
 
The company has been continuously receiving orders for its 737 Next Generation airplanes since its successful launch in 1997. To meet the growing demand, Boeing increased the Next-Generation 737 production rate thrice, year to date. The company spurred the production rate from 31.5 airplanes to 34 airplanes per month in May, then from 34 airplanes to 35 airplanes per month in June, and the most recent hike came in September, with monthly production jumping from 35 to 38 airplanes.
 
The company’s Commercial Airplanes segment suffered a year-over-year revenue decline of 11.8% in the second quarter of 2010. We, however, expect continued order wins in the segment to help deliver solid results in the upcoming quarters. The segment ended the second quarter with a contractual backlog of $251.6 billion, up 0.4% from the 2009-end level.
 
As of September 14, 2010, the current year’s net orders received by Boeing for 737 stand at 250 airplanes. Boeing expects to deliver 460–465 commercial airplanes in 2010.
 
On the flip side, Boeing’s revenue will suffer a setback if the proposed reduction in U.S. defense expenditure by $100 billion is effected over the next five years, given that a substantial portion of Boeing’s revenue is contingent on the U.S. budget. Also, a delay in the delivery of 787 Dreamliner might lead to negative investor sentiment, affecting the company’s valuation.
 
We maintain our “Neutral” recommendation on Boeing. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
 
Headquartered in Chicago, The Boeing Company designs and produces commercial airplanes (787, 737, 747, 767, 777), defense systems and civil and defense space systems. It is also the largest contractor for NASA (National Aeronautics and Space Administration). It competes with major defense primes like Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).
 
BOEING CO (BA): Free Stock Analysis Report
 
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
 
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
 
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