Last week, Boeing Company (NYSE:BA) inked a deal with Air China to supply 20 Next-Generation 737-800 jetliners. The Boeing aircraft will cost approximately $1,398 million (approximately HK$10,864.9 million) in total. Boeing will deliver the vehicles in stages from 2013 to 2015, and Air China will pay in cash installments.

 

The inclusion of these jetliners to Air China’s fleet will help the company expand its domestic routes.

 

The deal strengthens the scope of the partnership between Boeing and Air China. Recently, in May, Boeing signed a joint venture agreement with several Chinese research institutions and state companies − including Air China Ltd. − for developing bio-fuel to be used by Chinese airlines.

 

On the other hand, in anticipation of a heightened demand, Boeing increased the production of its Next-Generation 737 airplanes. The company had initially increased the production to 34 airplanes per month from the previous level of 31.5 airplanes per month, and has announced another spike in production to 35 airplanes per month in early 2012. Boeing believes that the projected deliveries will help it to record higher revenues in 2011 compared with 2010.

 

Boeing also added another feather to its cap. In a separate development, the company completed the “firm configuration” – the airplane’s structural, propulsion and systems architecture are defined and not changing – for the 787-9 Dreamliner. The second member of the 787 family, it is slightly a bigger version of the 787-8, with a seating capacity of 250−290 passengers, 16% higher than the 787-8. Boeing can now begin the production of the 787-9, with the first delivery scheduled for late 2013.

 

Boeing is the largest manufacturer of commercial jetliners and military aircraft, and has a balanced exposure to the commercial aircraft and defense equipment market. With the gradual recovery of the global economy, we believe freight and passenger traffic will improve, leading to a recovery in the commercial aerospace sector. Increase in 737 production, scheduled deliveries, getting firm configuration of 787-9 Dreamliner and continued contract wins will help Boeing to capitalize on recovery in the commercial aerospace market.

 

A major portion of Boeing’s revenue is dependant on the U.S. budget. Almost 50% of the revenue of the company comes from defense contracts, which will receive a blow if the proposed reduction of U.S. defense expenses by $100 billion in the next five years is carried out. We thus maintain our Neutral recommendation on Boeing. The quantitative Zacks Rank for the company is currently “3″, indicating no clear directional pressure on the shares over the near term.