Boeing Contract Shows B/E Aerospace’s Increasing Strength in Aviation Sector, says Professor Mike Lord

1.17.2012 Article, Faculty News, General

B/E Aerospace lands $800 million contract with Boeing
Reposted from Winston-Salem Journal | By RICHARD CRAVER

B/E Aerospace Inc. said Tuesday it has landed an $800 million contract with The Boeing Co. to become the exclusive manufacturer of modular lavatory systems for its next-generation 737 series.

The contract also covers Boeing's 737 MAX aircraft, which is expected to enter service later this decade.

The deal includes retrofit orders, "which are expected to be substantial," according to the company.

B/E, based in Wellington, Fla., has its largest U.S. operation near Smith Reynolds Airport in Winston-Salem, with more than 800 workers in its commercial aircraft segment. B/E spokeswoman Dede Potter said local operations will not be involved in the contract.

The deal is one of the largest development contracts ever for B/E. In October 2008, B/E announced a $1.2 billion contract with Airbus for its A350 extra-wide-body aircraft. B/E is supplying a galley system for the plane, which is expected to take flight in 2013 or 2014. It also has a $150 million contract to provide an oxygen system on the aircraft.

Investors reacted to the Boeing deal by sending B/E's share price up 26 cents to close at $41.67. Its share price has ranged from $28.83 to $42.85 in the past 52 weeks.

Amin Khoury, chairman and chief executive of B/E, said Boeing chose the company's lavatory system in part because of B/E's ability to develop systems "that increase airline revenue and yields while substantially improving the lavatory environment."

B/E's Spacewall lavatory system is designed to free up floor space in the cabin, creating the opportunity to add up to six passenger seats on each plane.

The system includes the company's Ecosystems vacuum toilet, LED lighting and tamper-proof lavatory oxygen system.

Khoury said he expects to begin delivery of the lavatory systems for Delta Air Lines' new 737s in the third quarter of 2013. The company said it would "substantially accelerate" spending on its modular lavatory program and on the related waste-water system programs to significantly bolster production by the end of 2012.

Carter Leake, a senior analyst with BB&T Capital Markets, said the deal stands out because it presents new revenue "with a significant long-term aftermarket opportunity, given the high use of the product."

"It certainly speaks to the confidence Boeing has in B/E to choose it as an exclusive provider of a plumbing product as essential as a lavatory."

Michael Lord, an associate professor of management at Wake Forest University, said the contract is more evidence of B/E's increasing strength in the aerospace sector.

"This is a relatively stable source of revenue for the company, so it's a confidence booster," Lord said. "It provides better visibility for the next couple years."