Wednesday, March 09, 2011

Boeing Bonanza From China

Boeing got some big news.  Hong Kong Airlines is buying $10B worth of 777s and 787s.  That figure is a list value before discounts, so the real gross is closer to about $6B (including another order from Air China for some 747s).  The deals add up to almost 10% of Boeing's gross revenue given the company's performance for the last three years

China's air travel sector is banking on continued growth.  One of the biggest problems facing any airline is the cost of fuel.  China's additional hurdle is the mere availability of fuel; it must seek oil exploration deals abroad.  Middle East unrest is getting worse and will make oil prices very unpredictable for months.  Libya's production is increasingly at risk of destruction and its eventual resumption is very much in jeopardy. 

Blanket bets on ever-expanding air travel are no sure thing in this kind of environment.  Boeing should hope that rising fuel costs don't price its airline customers out of future sales. 

Full disclosure:  No position in BA at this time.