Boeing's Next Big Contract

Before you go, we thought you'd like these...
Before you go close icon

737-what? 787-who? For weeks, Boeing (NYS: BA) investors have focused on the fortunes of its two biggest commercial passenger liners, but this week, the big opportunity is in freight, as FedEx (NYS: FDX) gears up to make a multimillion-dollar purchase of used and new freighters.

The contestants in this round are once again, as you might expect, Boeing and archrival Airbus. FedEx is reportedly weighing its options between buying 50 new Boeing 767 freighters to service its needs, or 50 Airbus A330s -- or a mix of both, or a mix of new and used planes. It's all still up in the air (so to speak), but pundits are predicting the upshot will be a deal valued at "several billion dollars."

Who gets the loot? I'd say the odds favor Boeing right now, and for three reasons. First, when FedEx had the option of buying freighters from both players in 2006, it chose Boeing's 777 over Airbus's A380 -- an order for which FedEx canceled, complaining of "significant delays" in getting the bird ready for flight.

Second, FedEx has already expressed especial interest in the 767. Back when Boeing beat out Airbus parent EADS for the Air Force's KC-X contract in February, it did so by offering a 767-variant to serve as the new USAF refueling tanker. No sooner had it won the contract then FedEx approached Boeing about the possibility of buying 767-400 freighters for its fleet (the 767-400 is based on the same airframe used to build the KC-X, now dubbed the KC-46A).

Third and perhaps crucially, the fact that Boeing won KC-X means it has huge scale of production on the 767-400 airframe. In the first tranche alone, Boeing is contracted to build 179 tankers for the Air Force. In contrast, Airbus only has 57 firm orders for its A330 freighter. With Boeing better able to buy and build in bulk, its 767 could turn out to be significantly cheaper than a small-batch A330 -- giving Boeing yet another leg up in the competition.

Foolish takeaway
Boeing is the Green Bay Packers in this contest, and Airbus the scrappy Saints. Bet on the Super Bowl champs to win. Bet on Boeing.

Who will FedEx ultimately favor with its business? Add it to your Fool watchlist, and find out.

At the time this article was published

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners