Every month, AeroAnalysis International 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 December report here. In this report, some news items from January will be highlighted.
In January 2019, Boeing's shares gained 20% compared to a 7% loss a month earlier. Boeing shares were significantly better than the Dow Jones, which gained over 7%.
Boeing's performance was strong throughout the month, but there is no single explanation for Boeing's outperformance. The markets recovered, and in that market, Boeing is a favorite, and there have been positive signs about the trade tension between China and the US. What we have seen in recent months is that Boeing's movements are a bit amplified. So, we see the shape of the curves for Boeing and the market being roughly the same but on different signalling under- or outperformance. Where Boeing's deviated from the market trend was after it reported earnings. That should hardly come as a surprise, since those earnings were simply stunning.
A look at some price target announcements in January:
- Morgan Stanley upgraded Boeing shares from Equal Weight to Overweight with a $450 price target.
- UBS Group reiterated its Buy rating for Boeing shares.
- Susquehanna initiated with a $388 price target for Boeing.
- JPMorgan Chase & Co. reiterated its Buy rating.
- Canaccord Genuity reiterated its Hold rating.
At first sight, it seems that analyst action was relative mute post-earnings, but it should be pointed out that Boeing reported its full-year earnings on the 30th of January, so much of the post-earnings analyst action will or has occurred in February. The January analyst action is indicative of positivity prior to earnings release.
Commercial Airplanes News
Early in January, Boeing identified United Airlines (UAL) as the customer for 4 Boeing 777-300ERs and 24 Boeing 737 MAX jets. The order was booked in mid-December 2018. The order marks the 3rd repeat order for the Boeing 777-300ER from United Airlines, making it one of the airlines that benefited from the reducing pricing on the Boeing 777-300ER. For the Boeing 737 MAX, the order marks the 2nd repeat order.
Since January is also the first month of the year, Boeing shared its full year orders and deliveries overview. We don't want to look into it in detail here since we already covered the orders and deliveries here and here.
During the month, the first Dreamliner was delivered to WestJet (OTC:WJAFF). The order for up to 20 aircraft, 10 firm and 10 options, was placed in 2017, and back then, AeroAnalysis considered it an important order, although we were sceptical about Boeing's ability to book enough orders to raise production on the Boeing 787. Since then, we saw extremely strong order inflow for the Dreamliner, and the order from WestJet turned out to be one that, although small, layers in nicely in the delivery stream.
One focus area of Boeing has been autonomous aerial mobility in urban environment. It's a lot different from commercial aircraft but is an area that is likely to grow in the coming years, and some of the autonomous solutions might find their way into commercial cockpits. During the month, Boeing reached a milestone with the first flight of its autonomous passenger air vehicle.
Source: The Boeing Company
In January, the Brazilian government approved the strategic partnership which makes Embraer's (ERJ) commercial aircraft part of Boeing's marketing effort. Approval was expected but did hit a roadblock in December as a judge blocked the deal or at least prohibited the board of Embraer from approving the strategic partnership.
While the strategic partnership with Embraer and the acquisition of KLX Aerospace Solutions Group have been rather big moves by Boeing, the jet maker does seem to favor smaller investments and primarily forward-looking investments to support innovation via its Boeing HorizonX arm. The $14 million investment in Isotropic Systems is an example of such an investment. Isotropic Systems offers increased data transmission capabilities at reduced costs for satellite service providers. The investment fits in Boeing's strategy to enhance its satellite and space capabilities.
During the month, there wasn't any news for Boeing Global Services. There was a contract from Spain to upgrade the Chinook helicopter fleet, but that does seem to be more of a Defense contract rather than a Services contract, hence it will be discussed in the Defense section of this report.
Source: The Boeing Company
Boeing Defense, Space & Security had a good month. The Defense arm of Boeing will upgrade all 17 of Spain's CH-47D Chinook helicopters to the F-model configuration, adding features such as the digital automatic flight control system, common avionics architecture system, and advanced cargo handling. The deliveries are scheduled to start in 2021.
Additionally, Boeing has started the delivery of the first KC-46A tankers to the USAF. This is a major milestone for the troubled program which saw billions of dollars in cost overruns and schedule delays amidst design complexities and shortcomings. As Boeing is getting a delivery stream going to the USAF, we expect that cost efficiency on production should improve.
Boeing also received orders for its other military derivative, the Boeing P-8A Poseidon. In total 19 P-8As, 10 for the US Navy, 5 for Norway, and 4 for the UK, were ordered in a $2.4B contract. First deliveries are scheduled for 2019 and 2021 for the UK and Norway.
The monthly reports don't have a real conclusion but have takeaways instead. What we saw during the month is that Boeing outperformed the market, partly driven by possible easing in trade tension and strong earnings. Boeing continued to shape its company via a strategic partnership with Embraer that was approved by the Brasilian government and strategic investments to enhance space capabilities. For Boeing Defense, Space & Security, we saw a major milestone with the first tanker deliveries to the USAF and upgrade orders for the Chinook and additional orders for Boeing's P-8A, which seems to be an aircraft with unique capabilities. While Boeing certainly had difficulties in its Boeing Commercial Airplanes and Defense, Space & Security segments in the past, we are currently liking the disciplined approach.
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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.