Analysts Remain Bullish on Boeing After Delta CEO Comments

Now a Boeing 777-200 for $10 million is a good deal. In 2001, when the 777-200 was in its sixth year of production, a new plane had a list price of $152 to $171 million. We noted Thursday that at least one 777-200ER, a 2007 version of the aircraft with more fuel-efficient engines and a longer range, was available at an asking price of $68 million.

The interesting point that Delta’s CEO made in his comments, though, was that pricing pressure on Boeing and Airbus in the wide-body market will seep into to the narrow-body market for Boeing’s 737s and Airbus’s A320s and A321s. The analysts at Canaccord Genuity disagree: “[W]e do not believe the [wide-body] weakness will spread to the [narrow-body] market, and we remain bullish on [Boeing] stock.”

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Canaccord’s analysts do believe that Boeing will cut its current 777 production from 8.3 per month to six per month in 2018 as the company transitions to the new 777X, but, they say, “the negative cash flow impact will be largely offset by the 737 rate increases to 52/month by 2018.”

The analysts also admit that the market for 777s is softening:

We hear that Kenya Airways is offering 4 on the market, Malaysian Airlines, which has 6, is putting them back with the lessor as it re-invents its fleet, and Singapore has the right to return 20 of its 777-200ERs, and in fact the first is back with Boeing. While Delta cited a $10M price, we are hearing prices in the ~$15M range, which would also entail a significant cabin reconfiguration expense, thus a total cost of $25M-$30M.

Still, a lot less than a new 777-200ER at a sticker price of $269.5 million.

Canaccord also thinks Delta’s comments were “self-serving”:

We understand that Virgin Atlantic, a JV partner with Delta, is looking to acquire ~20 777s as part of its fleet re-equipage. Part of Virgin’s delay in announcing this order was the belief that 777 prices had further to fall. We believe Delta is looking to pay $6M/year to lease the aircraft, including the cabin reconfiguration, which the market is not yet offering.

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Canaccord maintained both its Buy rating on Boeing stock and its price target of $165. The stock’s 52-week range is $115.14 to $158.83, and shares closed at $137.39 on Thursday. In Friday’s first hour of trading, the stock traded at $137.25, down about 0.1%.