A Boeing 737 MAX airliner flown by Southwest Airlines.
Jason Redmond / AFP via Getty Images
Southwest Airlines is going to take more of Boeing ‘s 737 MAX jets. That news has lifted Boeing stock, but it isn’t the only thing helping those shares.
Boeing (ticker: BA) shares were up about 2.9% in midday trading, while the S&P 500 was down about 0.3%. The Dow Jones Industrial Average was flat.
Southwest (LUV) placed an order for 100 more MAX jets, meaning it now has about 350 on order and options for another 270. The moves extend Southwest’s order book through 2031 “while accelerating 737-700 retirements and investing over $10 billion in new and existing firm aircraft orders to further improve fuel efficiency and reduce carbon emissions,” reads the company’s news release.
Lower fuel expenses are a big reason airlines are high on the MAX. Continually cutting costs is critical to the success of any airline.
“The MAX aircraft, with CFM International’s LEAP-1B engines, enable exceptional operational efficiencies such as a 14 percent lower rate of fuel burn,” said Mike Van de Ven, Southwest’s chief operating officer.
All MAX jets use the LEAP-1B engine, produced by CFM, a joint venture between General Electric (GE) and France’s Safran (SAF. France). Buyers of the Airbus A320 NEO, the rival jet, can choose between a CFM engine, the LEAP-1A, or a geared turbofan model produced by Raytheon Technologies‘ (RTX) Pratt & Whitney division.
The MAX was grounded worldwide for almost two years following two deadly crashes inside of five months. The plane was put back into commercial service in December and has operated without incident. That lack of drama has helped Boeing stock to gain almost 18% year to date.
The plane’s return to the market is one of the two big issues Boeing investors are watching. The other is the air-travel recovery from the Covid-19 pandemic. It is tough to tell whether news about the pandemic or about the MAX jet has had a bigger effect on the stock recently, but it is clear that as more people get vaccinated, the global outlook for air travel improves.
That creates demand for jets.
Almost 1.6 million people boarded a commercial flight in the U.S. this past Sunday. That is down about 37% compared with 2019, before Covid-19 hit. But it is far better than the 180,000 people that flew the same day in 2020. The number of people on planes has been growing week to week for months.
A third development—news that the company has resumed deliveries of 787 jets—is significant as well. Deliveries had been halted for a few months as a result of quality-control issues. The 787 is a larger, twin-aisle jet that flies farther than a 737 MAX.
“We think this goes a long way toward removing an overhang investors have communicated as a concern,” wrote Goldman analyst Noah Poponak in a Sunday report. “With both the 737 MAX and the 787 delivering and air travel rebounding, the pieces are moving into place for a strong free cash recovery, delevering of the balance sheet, and multi-year delivery growth.”
He is bullish on the stock, rating shares Buy. His price target is $275, while the shares were up 1.8% to $249.13 on Monday afternoon.
Poponak is a little more bullish than the average analyst. Only about 50% of analysts covering the stock rate it at Buy. The average Buy-rating ratio for stocks in the Dow is about 60%. The average target for the price is about $244.
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