Boeing (BA), a Dow Jones industrial average component, announced a 737 Max deal for 20 planes, a day after flight tests were halted over engine concerns.
On Thursday, Boeing said it received an order for eight 737 Max 9 planes, valued at $950 million at list prices, from Iceland’s Primera Air. The deal also includes the purchase rights for four more Max 9 planes and a lease deal for eight planes from Air Lease (AL).
Primera Air said it would us the jets for routes between Europe and North America.
“The 737 MAX 9 will allow Primera Air to open up nonstop, long-haul routes from Europe to the U.S. with unmatched economics,” Primera Air President Andri M. Ingolfsson said in a release. “This aircraft has a lower per-seat cost than the current wide body aircraft servicing the transatlantic and the capabilities of this aircraft type will change the economics of the industry.”
The announcement comes a day after Boeing said that it would ground test flights of its 737 Max over possible quality issues on low-pressure turbine disks in LEAP 1B engines. Boeing shares fell 2% to 183.18, dropping below a 185.81 buy point but finding support at the 50-day line.
Engine maker CFM, a joint venture of General Electric (GE) and France’s Safran, alerted Boeing to quality issues with the new engines. Shares of GE, another Dow component, rose 0.6% to 28.87.
On Thursday, Olivier Andries, the head of Safran’s aircraft engines division, said the issue wasn’t related to the engine’s design but was a quality problem with two of its suppliers, and that it should be fixed within weeks.
On Wednesday, Boeing said no issues were found with the engine during the 737 Max testing, but that it would suspend testing “out of an abundance of caution” and was still on track to start delivering the first planes later this month.
“While we believe these issues are likely minor in nature, and should not impact the still planned first MAX delivery later in May, these issues also have a way of expanding and can take more time to resolve than initially anticipated,” Canaccord Genuity analyst Ken Herbert wrote in a note. “If the delays do stretch and cause incremental delays in the program (which we view as a low probability), we wanted to highlight the importance of the 737 to the industry and specifically our universe. Note that the 737 tends to be a high margin program for many suppliers and is a source of significant free cash flow for Boeing and many suppliers, such as Ducommun (DCO), Spirit AeroSystems (SPR) and Hexcel (HXL). So while we view the risk of significant delays here as limited, it is risk to watch, and the initial delays can turn out to be more serious than anticipated.”
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