Boeing Wins Lion Air Agreement to Purchase Record $21.7 Billion in Jets

Boeing Co. (BA) won a provisional order, worth $21.7 billion at list prices, from Indonesian budget carrier Lion Air for 230 of its 737 aircraft in what would be a record transaction for the U.S. planemaker.

The commitment consists of 201 of the new 737 MAX model, which features upgraded engines, and 29 extended-range 737-900s, according to a statement. President Barack Obama today attended a signing ceremony for the deal in Bali, Indonesia, which coincided with a summit of Southeast Asian leaders.

“There has been a lot of big orders coming out of Asia lately,” said Shin Ji Yoon, an analyst at KTB Investment & Securities Co. in Seoul. “Travel demand will just grow and grow.”

Lion Air’s commitments are included in the 700 agreements for the 737 MAX that Boeing Commercial Airplanes President Jim Albaugh cited this week at the Dubai air show. Boeing decided in July to upgrade the top-selling 737 rather than build an all-new successor and hasn’t yet signed any firm orders for the MAX.

Boeing also said yesterday that lessor Aviation Capital Group plans to buy 35 of the 737 MAX jets and 20 of the current 737-800s, while Singapore Airlines Ltd. (SIA) firmed an order for eight 777s valued at $2.4 billion at list prices. Carriers typically receive discounts on large orders.

Asia-Pacific Opportunities

Boeing expects to complete the Lion Air deal, which will include 150 options for more planes, “fairly shortly,” spokesman Wilson Chow said at the signing ceremony, without elaboration. The Chicago-based planemaker expects to begin delivering 737 MAX aircraft to customers in 2017, he said.

“This is a remarkable example of the trade, investment and commercial opportunities that exist in the Asia-Pacific region,” Obama said at the signing ceremony.

Airbus SAS in June announced an order for 200 A320neo planes from Malaysia-based AirAsia Bhd. (AIRA) a day after confirming an agreement for 180 A320 and A320neo planes from Indian carrier IndiGo. The A320neo is a revamped version of the A320, which competes with Boeing’s 737.

Jakarta-based Lion Air flies an all-Boeing fleet consisting of 737 models in different configurations and MD-90 jets, according to its website. The airline had 126 single-aisle Boeing jets on order through October, according to the planemaker’s website. Lion Air has received 52 aircraft since its first order in June 2005.

“There is structural demand for travel in Asia and we do expect that will continue over the long term,” said Andrew Orchard, a Hong Kong-based analyst at Royal Bank of Scotland Group Plc. Still, Orchard was “a little bit surprised” by the size of the latest Lion Air agreement, he said.

Lion’s Fleet

Boeing’s Lion Air accord marks the second record broken this week by the 95-year-old company, after Emirates ordered 50 widebody 777s with a list value of $18 billion on Nov. 13. Options for 20 more jets would push the value of that deal to $26 billion.

The Lion Air accord “is a big deal,” said Rob Stallard, a New York-based analyst with RBC Capital Markets who has an “outperform” rating on Boeing. “It gives a meaningful boost to Boeing’s backlog and MAX order book.”

Once it’s signed, Lion Air’s order will be Boeing’s biggest by value and number of planes. The largest by value before this week was Air India’s agreement to buy $11 billion in various models in 2006. By number of planes, AMR Corp. (AMR)’s planned order for American Airlines in July would come the closest, though the 200-jet commitment that includes current 737s and 737 MAXes hasn’t been fully completed yet.

Boeing fell 0.4 percent to $66.09 yesterday in New York. The stock has gained 1.3 percent this year.

Production of 777 and 737 jets at Boeing’s Seattle manufacturing hub is being raised to record levels to help whittle down a seven-year backlog Albaugh has said is too high.

GE-Safran Engines

CFM International, General Electric Co.’s venture with France’s Safran SA (SAF), is the sole provider of engines for the 737, including the new Leap engine on the upgraded 737 MAX. Based on list prices, the Lion Air engine orders are valued at more than $5.3 billion.

The GE90 engine, the world’s most powerful, is the only choice on the 777ER model ordered by Singapore Air. That contract is worth more than $450 million based on list prices.

Separately, Boeing lost six orders for the 787 Dreamliner in the past week, countering a contract signed in Dubai for six planes and bringing this year’s cancellations for the new, composite-plastic model to 32.

Boeing Chief Executive Officer Jim McNerney said last month that the backlog for the plane won’t grow until delivery slots become available sooner.

In total, the planemaker has booked 495 net orders this year after 116 cancellations, according to its weekly website tally updated yesterday. That doesn’t include the commitments for the 737 MAX.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net;

To contact the editors responsible for this story: Neil Denslow at ndenslow@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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