Each year, Boeing and Airbus engage in a fierce order battle. In 2017, Airbus won that battle by numbers, but in terms of dollar value, which AeroAnalysis ultimately considers to be more important, Boeing easily outperformed Airbus. For 2018, Boeing expects order inflow to be moderated. That’s a pretty vague term, but it does not make it less interesting to look at orders and deliveries on a monthly basis to assess the overall appeal of aircraft on the commercial market. By looking at the orders, we can see a combination of willingness to commit with pricing, product, and availability coming together. Special attention will be paid to the mix of single-aisle aircraft and wide-body aircraft, knowing that a single-aisle aircraft costs roughly half or a third of a wide-body aircraft, depending on the model.
In this report, AeroAnalysis will have a look at the order inflow and deliveries for Boeing in September 2018. If you missed the August edition, you can read it here. The article is paywalled, but is freely available to subscribers and trial members of the AeroAnalysis Marketplace service.
Orders in September
During the month of September, Boeing received a total of 65 orders valued at nearly $6.5 billion after discounts:
- Air Peace ordered 10 Boeing 737 MAX aircraft.
- Two unidentified customers signed for 1 and 21 Boeing 737 MAX aircraft, respectively.
- The USAF ordered 18 Boeing 767-2C for tanker conversion.
- Boeing Capital Corporation ordered 1 Boeing 787-9.
- Two unidentified customers signed for 2 and 3 Boeing 787-9 aircraft, respectively.
- United Airlines (UAL) placed a repeat order for 9 Boeing 787-9 aircraft.
During the month, we saw the cancellation tally increase from 157 to 172. So there were 15 cancellations. Net orders for the Dreamliner increased by 8, while there were 15 orders. So there were 7 cancelations. It seems that Hainan Airlines Holding, China Eastern Airlines and Bank of Communications Leasing were revealed as the customers for 5, 4 and 1 previously unidentified Dreamliner orders, while 2 and 1 orders, respectively, were allocated from CIT Aerospace and Avolon to unidentified orders while GECAS reduced its Dreamliner orders by 1 and China Development Bank Financial Leasing scrapped orders for 6 Dreamliners. We tried doing something similar, but keeping track of single aisle cancellations is much more challenging given the size of the datasheet as well as there being no granular split-out per generation and per MAX type. What we did find is that SpiceJet orders were reduced by 3 units and we observed that one P-8 order was transferred but not accounted for as a separate order. Out of the 8 cancellations for the Boeing 737, we could only attribute 3. The remaining cancellations likely occurred in Boeing’s unidentified customer tally.
September was a decent month where Boeing booked 65 gross orders versus the three- and five-year average of 52 and 75 units (net). In the first 9 months, Boeing booked 631 net orders versus 498 net orders last year. So, Boeing is having a strong year, and it will be interesting to see whether the company can keep that positive momentum all the way to year-end.
Deliveries in September
For 2018, Boeing has set a delivery target of 810-815 units, which has been reaffirmed in September. In December 2017, AeroAnalysis set a 2018 delivery target of 816 units at the low end. Boeing is more or less meeting our expectations here.
In September, the company delivered 87 aircraft, up 23 units from a month earlier:
- Boeing delivered 61 Boeing 737 aircraft, including 22 of the MAX variant.
- Boeing 787 deliveries were 6 units above the production rate of 12 aircraft per month.
- Boeing delivered 6 Boeing 777 aircraft including 3 freighters.
- FedEx Express (NYSE:FDX) took delivery of 1 Boeing 767-300F aircraft.
- There was 1 Boeing 747 delivery to UPS (UPS) during the month.
Delivery numbers are showing a strong recovery with delivery numbers more or less in line with what is required on average during the remainder of the year. The number of single aisle deliveries is in excess of the production rate, which signals that the number of piled up airframes is slowly diminishing. What we’d like to point out is that part of the surge in deliveries occurred to meet internal targets. September is the last month of Q3, so every delivery that Boeing can get out of the door goes towards Q3 earnings. Roughly 55 percent of the deliveries occurred in the last 7 days of September, that gives reason to wonder what we can expect in October. Year-over-year, deliveries increased by 14 units while the delivery target increased by 50 units. This reconfirms that despite recovery in the delivery profile, Boeing is not there yet, and it needs to hit the rate of 55 single-aisle deliveries on top of the shortfall in earlier months to reach its delivery target.
For 2018, the company remained somewhat vague on the subject of the book-to-bill ratio, expecting “moderated” order inflow. Obviously, shareholders are hoping to see Boeing having a book-to-bill ratio of 1 or higher for the full year. AeroAnalysis currently is expecting it to be between 1 and 1.25. In September, Boeing booked 65 gross orders while delivering 87 aircraft, indicating a 0.75 book-to-bill ratio driven by higher deliveries. In terms of value, this ratio was 1, reflecting an appreciable mix between single aisle and wide body aircraft. For the first 9 months of 2018, the gross book-to-bill is 1.41 and 1.44 in terms of value. The company is having a good year so far, but what the book-to-bill ratio does not capture are the supply chain challenges that Boeing is currently addressing. It’s good to continue capturing orders, but it is a smooth and efficient output that matters.
In September, we saw some steady order inflow for wide body aircraft as well as some single aisle orders. On the delivery side, we saw an uptick in single-aisle deliveries. In our view, that is a much needed uptick and to reach its delivery target Boeing is tasked with delivering 81 jets per month in the coming 3 months. Overall, we do expect that the company will be able to meet its delivery target, though there likely will be pressure on the delivery schedules of the Boeing 737 and Boeing 787. Looking at orders, Boeing has a good momentum as it captured some key customers for its aircraft, but the pool is finite, meaning it is going to depend more and more on repeat orders going forward.