Ryanair Shoots Down Boeing

“Ryanair says it stopped discussions to buy as many as 200 Boeing aircraft. The two sides did apparently agree on price but Boeing would not incorporate other terms…” — CNBC’s Squawk on the Street 12/18/2009

Boeing (BA) stock is under pressure today as negotiations over a large order with Ryanair (RYAAY) have run aground. According to the various news reports, the issue is not with the price but certain other contract terms which would have allowed Ryanair to extend terms on this contract into future deals between the companies. Obviously, an order of this size, about 200 airplanes, would have represented a substantial multi-year revenue stream to Boeing. Shares are trading down about 2% on above average volume.

The aircraft at issue is Boeing’s Dreamliner which has been a thorn in Boeing’s side for some time, as more than two years of delays have frustrated investors and airlines alike. Last week, Boeing finally took the Dreamliner for a test flight and appears to be ready to start producing the airliners soon. The planes are made of lighter materials and will help airlines reduce costs on fuel going forward. Many airlines are crippled by the high and potentially volatile costs of jet fuel that lessening this exposure is certainly exciting to them. However, the delays have frustrated some into canceling or postponing orders as Australia’s Quantas and other carriers have done in recent months. The now defunct order for Dreamliners were to be delivered between 2013 and 2016, and will not affect the current order for 112 Dreamliners to be delivered before the end of 2012.

London’s Financial Times reports that this move may continue a shift in priorities among Ryanair executives away from growth and towards increasing shareholder value. Ryanair has focused on growing operations and reinvesting cash flow for basically its entire history, but is now seriously considered paying a dividend for the first time. The speculation is that with this new order no longer on the capital expenditure budget the airline may offer a one-time special dividend instead.

Boeing still has a healthy backlog of orders to work their way through, and if the initial rollout of the Dreamliner goes well the pipeline for 2013 and beyond will likely fill up nicely. This is just a noteworthy trend as this is not the first firm to back off on orders for the embattled 737 Dreamliner. Also, it shows a potential long term shift in focus for the Irish airline known as one of the fastest growing airlines in Europe. Interestingly, as of our most recent reports, we have Boeing rated as Fairly Valued, but Ryanair’s ADR rated as Undervalued.

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