Boeing and Vietnam have the Billion Dollar Deal

By William Patalon III
Managing Editor
Money Morning/The Money Map Report

The Boeing Co. (BA) has completed deals to sell 12 of its new Dreamliner jetliners to both Vietnam Airlines and to a new Vietnamese leasing company as that Asian country's flagship air carrier moves to end its airliner shortage. Based on published list prices - which are typically subject to deep discounts - the deal is worth $1.9 billion.

The deal underscores yet another reason Money Morning's investment gurus favor Boeing's stock: The aerospace company has a strategy for all of Asia, which includes such promising markets as Vietnam and China. Indeed, Boeing recently estimated that there's a market for $340 billion in commercial aircraft in China over the next two decades.

Vietnam is just as promising - just on a smaller scale.

With an economy that's growing at 8% annually, Vietnam has seen air travel escalate at an exponential rate. And that's put the country under pressure to boost its aerial jetliner fleet to keep up with tourism and trade. Vietnam has 46 aircraft, but wants to almost double that to 86 by 2015.

Four of the Boeing B787-8 Dreamliner jetliners planes would go to the state-run carrier and eight to Vietnam Aircraft Leasing Joint Stock Company, of which Vietnam Airlines is one of five founding shareholders, officials said.

Vietnam Airlines also has a 2005 contract with the U.S. company for delivery of four 787-8s in 2009 and 2010.

"You can see the fleet today and guess for the future but as an airline business our response to the market is we will operate the most modern and the most efficient fleet," Pham Ngoc Minh, deputy director general of Vietnam Airlines, said at a news conference. Minh is also chairman of the leasing company, which said it would receive the first aircraft in 2016.

The carrier signed draft agreements in late September and early October with Boeing and Europe's Airbus SAS, a unit of EADS NV, for passenger jets. Vietnam Airlines split $5.5 billion in aircraft orders between Boeing and Airbus in agreements that analysts said owe as much to political considerations as commercial ones.

The Vietnamese government has said it wants Vietnam Airlines to finalize the agreement with Airbus to buy 10 Airbus A350-900XWB passenger jets and 20 single-aisle A321 jets before Dec. 21.

The United States is Vietnam's largest export market. But Vietnam also has been seeking broad international support for its bid to gain a two-year seat on the United Nations Security Council in 2008 and 2009. Since it began emerging from isolation after its 1986 shift toward market-oriented policies, the country has sought to avoid dependence on any one power or alliance.

"It must be political," said Paul Nisbet, a well-known aerospace-industry analyst and partner in the market-research firm of JSA Research Inc. "Buying both the 787 and A350 doesn't make an awful lot of sense, certainly not economically, as it's going to cost them a lot to set up logistics support and training for two very different planes."

Vietnam Airlines didn't specify the reasons for ordering planes from both manufacturers, saying the company was comfortable with its decision. Airlines - especially smaller ones like Vietnam's state-run carrier - usually choose one manufacturer for each class of plane, realizing major sums on both spare parts and pilot and maintenance training.

"We don't see it as that difficult to handle," spokesman Trinh Ngoc Thanh said.

The provisional Boeing contract is worth $1.8 billion at list price and comes on top of the existing order for four 787 Dreamliners. The carrier's preliminary order for 10 300-seat A350s and 20 single-aisle A321s gives the Airbus deal a total value of $3.7 billion at list prices.

Boeing the 'Global Titan'

We also like Boeing because - like such other favorites as Yum! Brands Inc. (YUM), PepsiCo. Inc. (PEP), The Coca-Cola Co. (KO), and even McDonald's Corp. (MCD) - it is a so-called "Global Titan: a company that's not solely dependent on the U.S. market for sales. Boeing has a -huge overseas sales presence, which gives it diversification, but more importantly lets it benefit from the huge growth taking place in such key Asian markets as China and Vietnam.

Boeing and Airbus are now competing to sell their latest jetliners to Vietnam; even Bombardier of Canada is angling for a piece of this super-fast-growing market. This communist-ruled nation with a population of 84 million is experiencing red-hot economic growth of 8% a year, which means that there's an emerging middle class of consumers with the time, money and desire to travel by air.

The state-owned and operated Vietnam airlines is going to be privatized, meaning there will be a need to upgrade its flying fleet of nearly 50 airplanes. And, as Bach Quoc Thang, a Vietnam Airlines general manager says, the carrier wants to position itself as "one of the leading regional carriers ... Singapore Airlines and Cathay Pacific are the examples we want to follow."

According to, the airline is also looking to transform its subsidiary Vietnam Air Service Co. into a low-cost carrier that can take on Pacific Airlines, which is part owned by the highly regarded Qantas of Australia, as well as Malaysia's Air Asia, which is a partnership with shipbuilder Vinashin.

The bottom line: Vietnam Airlines' emergence means billions of dollars in possible additional sales for the manufacturers able to land the contracts.

The Boeing Buyback

Boeing, the world's No. 1 producer of commercial airliners, said it will buy back as much as $7 billion of its common stock, the latest leg of a share-repurchase program under which the aerospace company has bought back $8 billion worth of its shares since the program was resumed in 2004.

Boeing also declared a regular quarterly dividend of 35 cents a share, payable Dec. 7 to shareholders of record as of Nov. 9.

"Our strong financial performance allows us to return value to our shareholders while continuing to invest in our growth and becoming more productive," Jim McNerney, the company's chairman and chief executive officer, said when the new buyback plan was announced this week. "We are executing a balanced cash deployment strategy that's serving Boeing and its shareholders well."

Boeing's stock has climbed steadily since recovering from a slide following the 2001 terrorist attacks, which dealt a blow to its airline customers. Shares have quadrupled since early 2003, and more than doubled from pre-attack levels, the company said.

Boeing said its board of directors approved the new plan to buy back up to $7 billion of the company's common stock. The company has repurchased approximately $8 billion of common stock since resuming its stock-buyback program in 2004. The Boeing board last authorized buybacks in August 2006, when it announced plans to repurchase $3 billion worth of shares. That buyback initiative is nearly complete, Boeing said.

The share repurchases will be made on the open market, or in privately negotiated transactions. And the company said the number of shares purchased, and the timing of any buybacks, will depend on corporate cash balances, business and economic conditions, and other factors, including investment opportunities.

Boeing is the No. 1 U.S. exporter, and is a stock that several of Money Morning's contributors and advisory panelists have identified as one of the globally focused U.S.-based companies investors might want to research further [In fact, to see a copy of our special investing research report, "Investments for a Weak Dollar World," one of several of our research reports that list Boeing among the U.S.-based companies that will really benefit from the falling greenback, please click here. The report is free of charge].

The company recently said its profits soared 61% in the third quarter, its best showing in four years. The results smashed forecasts, but the company throttled back some of Wall Street's exuberance by cutting its 2008 revenue estimates because of delays in launching its new Boeing 787 Dreamliner.

A month ago, Boeing said the hot-selling Dreamliner would be at least six months late as the company deals with incomplete work from suppliers, problems integrating the complex software that controls the airplane, and a crisis-level shortage of bolts. The airliner is considered crucial to Boeing's future, and the company says it is still addressing "challenges" as it builds the first batch of 787s. Boeing is aiming for the first test flight in late March 2008, with the first delivery to be made in late November or December.

"The focus will be on the 787 and whatever may be said on the viability of their current schedule," Nisbet, the JSA Research Inc. analyst, told Reuters. "That will be the key."

Boeing said that its earnings from continuing operations for the third quarter were $1.43 per share, which easily beat the consensus Wall Street estimate of $1.24 per share, according to Reuters Estimates.

Revenue rose 12% to $16.5 billion, above the average analyst forecast of $16.05 billion.

Boeing raised its full-year profit forecast to a range of $5.05 per share to $5.15 per share, up from a previous forecast of $4.80 per share to $4.95 per share. This new forecast is right in line with Wall Street's average estimate of $5.06 per share.

However, Boeing held steady on its 2008 profit forecast of $5.55 to $5.75 per share, below the consensus Wall Street estimate of $6.04 per share. The company also lowered its revenue forecast for account for the projected six-month delay in 787 Dreamliner production and slower growth in its defense unit.

Boeing said it now expects 2008 revenue of $67.5 billion to $68.5 billion, down from its previous estimate of $71 billion to $72 billion. Analysts had been forecasting revenue of $71.2 billion on average.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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