Boeing’s Orders And Deliveries Were Off Forecast At Mid-year

+34.15%
Upside
193
Market
259
Trefis
BA: The Boeing Company logo
BA
The Boeing Company

Over the past few quarters, Boeing (NYSE:BA) has witnessed a trend of softening orders while deliveries remain strong. Furthermore, there has been a stark change in the orders and deliveries mix, as can be seen in the table below. The key changing trends have been identified in the analysis that follows.

Boeing

Source: AirInsight

Orders:

The table above shows us the orders and deliveries for July 2015 and 2016. By taking a look at the changes in orders, certain trends come to light.

  • The MAX orders are up in 2016 by 23%. As one can see, the MAX8 is a clear winner while orders for the MAX7 and MAX9 look weak. The lack of enthusiasm for the MAX9 has got to hurt the company. While Boeing struggles to bring up the orders on the model, Airbus is outselling this model by 5:1.
  • Apart from the United order for the 737-700s earlier in the year, orders for the 737 program are down. 737-800 (the most popular variant in the family) has witnessed a decline in orders close to 20%. Unfortunately for the company, the 737 is Boeing’s biggest bread earner and a weakness here could threaten financial strength. The aviation giant must address this problem before its too late.
  • The future of the 747 and 767 programs seem uncertain at the moment. Freighter orders have suffered in the recent past due to a weakening economy putting a downward pressure on the air freight market. Furthermore, there a number of 767s coming out of passenger service presently which can easily be converted to freighters at a low cost. This would further dampen potential orders.
  • The 777 program has witnessed softening orders for the current model in anticipation of a newer version. However, the lack of 777X orders in the aforementioned period is a point of concern. This is worrying to many as the 777 is regarded as the benchmark long-haul passenger jet. Even a slight delay in the 777X production could widen the production gap with the 777-300ER. This is bound to affect the cash flows negatively.
  • The 787 program, like the 777 has seen declining orders. The 787-9 is by far the best seller and has now overtaken the 787-8 in terms of orders. The newer 787-10 is seeing no orders despite having the potential to replace the early 777-200s. This could be a point of concern for the company.

 

 

Deliveries:

In general, Boeing has expedited deliveries over the last year or so. This is quite possibly the company’s biggest strength. That said, the question remains whether these deliveries will be welcomed as quickly as Boeing plans to deliver them.

  • As one can see from the table, the 737-800 model is the biggest story in the aforementioned period. However, as mentioned before, orders for the aircraft are down considerably in the last year or so. Despite what airlines order, what they accept at delivery paints the really story. Airlines tend to buy smaller planes, pay a nominal deposit and then switch the order to a larger model. The deliveries only underscore the significance of the 737 to Boeing. Therefore, the weakness in 737 orders is not something one should take lightly.
  • The 747 program is on a death march. Orders are declining on the back of a weak freight market and deliveries are much larger than orders. It is likely that Boeing will kill the program in the near future due to the crippling demand for the aircraft.
  • As for the 777, one can clearly see from the charts that deliveries are close to five times higher than the number of orders. Despite heavy discounts and promotions, Boeing is not being able to raise the demand for the 777s.
  • Looking at the 787 program, it is clear that the market has moved to the 787-9. The few deliveries of the 787-8 are from orders placed a while back. Despite being a much better plane than before, the 787-8 cannot match the 787-9 in terms of capabilities. Overall, the 787 is the second most delivered aircraft by Boeing. However, as in the case with the 777, the deliveries are outpacing orders significantly.
Relevant Articles
  1. Should You Pick Boeing Stock At $190?
  2. Having Lost 15% So Far This Year, Is Boeing Stock Undervalued At $210?
  3. Will Boeing Stock Recover To Its Highs of Over $250?
  4. Following A 39% Rise This Year Is Boeing Stock A Better Pick Over Caterpillar?
  5. Is Boeing Stock Undervalued At $190?
  6. Here’s What To Expect From Boeing’s Q2

However, softening orders may not be a point of immediate concern. Boeing boasts of a robust backlog of about $472 billion with close to 5,700 orders in the pipeline. This means that, at the current rate of production, the company can continue uninterrupted production for the next 7 years. This could explain why deliveries are up so much. Additionally, one must note that aircraft orders are cyclical in nature and are dependent on factors like economic health and the life cycle of aircraft. Given the recovery being seen in oil prices, it is only to be expected that airlines will delay further orders of aircraft until a clearer picture emerges.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Boeing

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research