Boeing Books Huge Win (NYSE:BA)

Recovery in demand for airplanes has been flowing from small to larger jets, and we are currently at the stage where we see that the demand recovery is also resulting in wide-body orders. Recent examples are the United Airlines Holdings, Inc. (UAL) orders for the Dreamliner, an order from Deutsche Lufthansa AG (OTCQX:DLAKF) for more Dreamliners, and the tentative order from Air India order for the Boeing 787, Boeing 777X, and Airbus A350 (OTCPK:EADSF). Just one month after the Air India order announcements, we already have a new big order for The Boeing Company (NYSE:BA), which I discuss in this report.

Boeing Order News: Big Push From Saudi Arabia

The latest order is one that is not “just an order,” it is a diversifying move from Saudi Arabia to become less reliant on oil and develop its tourism sector, for which aircraft are required. Sounds familiar? Probably, yes. This is the same strategy that Dubai and the UAE adopted years ago to diversify away from real estate and oil and gas income.

Via a newly established airline named Riyadh Air, Saudi Arabia wants to attract 100 million visitors per year by 2030 and serve 100 destinations. It is highly likely that beyond bolstering the tourism sector, Saudi Arabia also wants to develop its position as a transit hub going head-to-head with Dubai and Istanbul. In order to support those aspirations, Saudi Arabia is planning to have an airport in Riyadh with a capacity of 185 million passengers per year by 2050, and obviously, they also need an airline with airplanes to turn those aspirations into reality. That is why Riyadh Air will order 39 Boeing 787-9s, with options for another 33 jets.

On top of that, the flag carrier Saudia will buy another 39 Boeing 787 Dreamliners with options for another 10. Both deals will result in 78 orders plus 43 options for a total of 121 jets. If all options are exercised, the deal would be worth up to $159.2 billion at list prices and $74.5 billion when using actual market values for the jets.

What Will Boeing 787 Production Rate Be In 2023?

Boeing is currently producing the Boeing 787 at low rates but intends to produce 5 Dreamliners per month by the end of 2023 and 10 airplanes per month by 2025-2026.

Boeing Is Building A Strong Skyline For Higher Production

At future production rates, the complete order when all options are exercised gives Boeing one year of production from just one order, which is significant.

If we look at some recent sales campaigns, then we see that Boeing had huge success selling the Dreamliner to customers. In total, around 210 orders will be added to the order books from these campaigns, securing 21 months or nearly two years of production with another 16 months of production in options. If these orders are firmed as well, Boeing will add 37 months or over 3 years of production towards the order book. The order from United Airlines is already reflected, which leaves 11 months’ worth of production to be added to the books and another 16 months via options, putting the order add at 27 months. Putting it differently, just from a few big campaigns Boeing will add 20% and potentially 54% to its backlog, which is incredibly strong.

Is Boeing Stock A Buy?

Currently, Wall Street analysts are expecting a 7.7% upside for Boeing stock. I have a low price target of $240 and a high price target on $300 for Boeing stock, and I do think that given the strong backlog development and cash margins on the Dreamliner, the recent order actions are an indication that there is significant upside for Boeing that is already being added to the backlog at this very moment.

Conclusion: Boeing Stock Is A Buy On Dreamliner Demand Validation

I continue to rate The Boeing Company stock a buy, and I view the newest order addition as well as the previous ones as a clear validation of the strong value the Dreamliner has in airline fleets, which should also reflect in Boeing’s results. The addition to the backlog is significant and provides support to further rate increases that Boeing planned, showing that the planned rate increases are in fact demand driven.