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There have been some fireworks at the Farnborough Air Show for The Boeing Co. (NYSE: BA) and I'm not talking about the aerobatics displays. Boeing has had major orders on the first two days of the air show, outpacing rival Airbus.
The much anticipated show which runs July 9-15 has given hope to Boeing that it could catch up to Airbus as the world's biggest aircraft producer. Airbus last year dominated the festival, which alternates between Farnborough and Paris, with its "Neo" aircraft, but Boeing is leading the charge this year.
The aircraft industry has been thriving the past few years and Airbus has led Boeing in market share since 2006. Boeing hopes the Farnborough Air Show will be a catalyst for its comeback, fueled by orders of its new 737 Max plane.
U.S. Air Lease Corporation on Monday purchased 75 of the 737 Max jets and founder Steven Udvar-Hazy commemorated the opening of the festival and the deal by ringing Monday's NYSE opening bell via satellite.
That excitement was followed Tuesday by news that GE Capital Aviation, the commercial aircraft leasing and financing arm of General Electric (NYSE: GE), announced it would purchase 75 of the updated 737 Max 8s and 25 of the current 737s.
Airbus has announced smaller orders, one Tuesday from Hong Kong-based airline Cathay Pacific worth up to $4.2 billion and two Wednesday worth about $4.4 billion.
Boeing's orders with GE and ALC are said to be worth up to $9.2 and $7.2 billion, respectively, but it's not known for sure. That's where the mystery of the show and the secretive nature of the industry come into play.
How Much Did That Plane Really Cost?
Those figures for Boeing's orders are reported on the catalog price and not for what dealers actually paid for the planes.
As reported in The Wall Street Journal Monday, the price of a major aircraft is not always what it seems and mystery surrounds the details of many major deals. Public disclosure of prices is discouraged and rarely seen, so competing firms are left guessing at prices.
Much of the reason for the price ambiguity is the complex nature of an aircraft contract. The contracts can run up to hundreds of pages and often include hidden or added on fees. Many airlines purchase a large quantity of planes to be delivered over the course of years and the actual prices can be impacted by inflation.
It seems that many companies are able to work out "deals" for the planes they purchase as many models sell at discounts between 20% and 60% compared to catalog prices.
Industry experts concede that the average discount price is around 45% with favored customers getting higher discounts.
Investor Takeaways from Farnborough Air Show
Besides aerospace leaders Boeing and Airbus, the Farnborough Air Show offers defense and space companies a chance to show off as well.
Defense is expected to face serious contraction issues as political policies across the globe have recently called for a cut in defense spending. Automatic cuts to the U.S. defense budget are set to take effect at the beginning of 2013 thanks to Congress's inability to curb U.S. debt – highlighted by last year's budget fiasco.
BAE, Dassault, and Saab attended the show while U.S. defense contractor Northrop Grumman (NYSE: NOC) was noticeably absent. The Falls Church, VA-based company cited "affordability and cost reduction goals" as the main reasons for skipping this year's show.
Commercial space travel will be a major topic at Farnborough after SpaceX's Dragon completed a successful mission to the International Space Station in May.
There are supposed to be twice as many "space" companies at this year's show compared to last year's and many are looking forward to Virgin Galactic's tourist spacecraft SpaceShip2. The six-passenger commercial ship was cleared by the FAA earlier this year to begin rocket powered suborbital test flights.
Boeing should be satisfied with the results of the show, earning big orders from its upgraded 737 Max and receiving positive comments on its 787 Dreamliner which is on display at this year's show.
Boeing stock has had a great run the past year and hopes this success can propel it even further.
If you are a Private Briefing subscriber you received a recommendation to buy Boeing last September before it started climbing upwards.
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