NEW YORK ( TheStreet) -- The big order placed by AMR ( AMR) on Wednesday for Boeing ( BA - Get Report) and Airbus planes is being viewed by the market as a big win for GE ( GE - Get Report) and a potential loss for GE's aerospace competitor, United Technologies ( UTX - Get Report).

The order from AMR's American Airlines is the biggest commercial airplane order ever, and GE was the only clear-cut winner in terms of the engines being featured in the deal.

GE shares rose 1% on Wednesday even as the broader equity markets dipped, while United Technologies shares fell by close to 3% even as it reported strong quarterly earnings.

The backdrop to the battle between GE and United Technologies in the AMR story is the competition between GE's LEAP-X engine technology and United Technologies' affiliate Pratt & Whitney's geared turbofan engine. The geared turbofan engine has been a competitive threat for GE, leading to questions about GE's ability to keep up with Pratt & Whitney in next generation engine technology. However, the new AMR orders for Boeing and Airbus seemed to put the pressure back on United Technologies.

"This is a huge win for GE," said Ben Elias, analyst at Sterne Agee. The GE analyst said the AMR announcement had several positive indicators for GE. First, AMR has opted to re-engineer the existing 737 from Boeing, as opposed to making a new 737. The Boeing 737 uses the LEAP-X engine that GE manufactures in a joint venture with CFM International. "It means a lot to the stock and GE will quantify it on Friday when it reports earnings," Elias said.

The markets seem to imply that GE was going to benefit to the detriment of United Technologies on the Airbus side of the deal too, though this point is being debated. The Boeing contract is specific to the GE LEAP-X engine, whereas the Airbus approach has been to evenly split the A320 engines between GE and United Technologies. A comment from AMR that all of the engines would be the Leap-X engine led to confusion over whether the comment only referred to the Boeing order, or the Airbus order, too.

"The fact that the 737 is being re-engineered and sourced to GE is a win for GE, but it's still kind of hard for me to say it's a loss for Pratt & Whitney," said Daniel Holland, Morningstar analyst. "GE got a very healthy chunk of orders on the Boeing side, but Pratt still has a good shot at picking up some volume on the Airbus side," the analyst said. "I think both companies can look at this news with rose-colored glasses," Holland added.

William Blair analysts noted on Wednesday that United Technologies' second-quarter earnings and outlook for rest of 2011 were healthy, and the stock was down due to confusion about engine selection for the AMR order.
  • For 100 B737NG, engines are likely to be CFM56 engines
  • For 100 B737NG Re-Engine (Evolution), engines will be GE LEAP-X (next generation of CFM56 to compete with P&W Pure Power GTF)
  • For 130 A320, no engine selection has been made
  • For 130 A320neo, no engine selection has been made
  • "Investors freaked about AMR chose LEAP-X to re-engine," William Blair analysts wrote. However, they stressed that AMR has not chosen engines for any A320s (neo or regular) and with no commonality issues (AMR doesn't currently operate any A320s).

    In fact, Blair analysts contend that engine selection will be likely announced by Sept. 1, and UTX expects it can win regular A320 order and all the engines with the PW1000G Pure Power GTF engine for the A320neos.

    Investors were disappointed that the deal didn't have a clear-cut win in it for UTX, but that doesn't mean United Technologies will be shut out of the Airbus order.

    Sterne Agee's Elias said that the fact that Boeing is still going with the GE engine instead of replacing the 737 entirely is alone a sign that the perceived competitive threat from the geared turbofan has been overstated.

    "Show me one platform where GE is at a disadvantage because of the geared turbofan. I don't think people will question it now," Elias said.

    Morningstar's Holland said that if Boeing had made the decision to scrap the existing 737 and come up with a brand new frame, it would have left GE in the difficult position of defending its existing engine technology. "This shows that LEAP-X is competing well and they don't have to make a big R&D cycle uptick in the near-term. The path of profitability for GE with the LEAP-X engine has not been muted," Holland explained.

    Boeing Commercial Airplanes CEO Jim Albaugh said at a news conference on Wednesday that concerns about the ability of its production system to handle a new airplane had played a role in Boeing's decision to stop short of an overhaul.

    The Bombardier C series features Pratt & Whitney's newer engine and that led to the fears of GE losing its edge versus the geared turbofan, but the Bombardier C series was not in the big deal from AMR.

    William Blair analysts attempted to analyze this competitive issue by noting that the initial $13 billion shipments of AMR's narrow-body order will be financed by Boeing and Airbus, something Bombardier would never offer.

    Blair analysts also said that "pricing on this order from weakest U.S. Carrier was very tough, and Bombardier is working EXTRA hard to secure strong pricing for initial C Series orders, so they are not going to dogfight for large "profitless" order, while the economics for Boeing are different.

    Sterne Agee's Elias said that in the final analysis, the order is a good read-through for the aerospace industry.

    "Aerospace is strong and we are in the early stages of an extended aerospace cycle," Elias said, noting that high oil prices will drive replacement of planes. "We have all of these next generation plans getting ordered and built by 2014 and onward, and Airbus and Boeing taking up production rates."

    Airbus' top official told Reuters on Wednesday that it is considering boosting output of narrow body plans beyond its existing record target. In his comment to Reuters, the Airbus CEO said, "We are having a big success in the marketplace and this is real -- we are not producing overcapacity...We are certainly looking at much more significant ramp-up targets than we hitherto did."

    -- Written by Eric Rosenbaum from New York.


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