For a couple of years, AeroAnalysis has been tracking the monthly order inflow for Boeing (BA) and Airbus (OTCPK:EADSF) (OTCPK:EADSY) aircraft. The monthly coverage is not so much there to invoke any Boeing vs. Airbus rhetoric, but it gives us some valuable insights.
A single month does not make a trend, but by closely tracking the order and cancellations activity, we always will be a step earlier in detecting trends, and we will have detailed insights into customers’ appetite to order and take delivery of aircraft, and we can even track it by type as well as the jet maker’s ability to reach any set sales target. 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, we will have a look at the orders and deliveries as well as cancellation activity for Boeing during the month of December. You can read the November report here.
What should be kept in mind is that, while this seems to be a simple summarizing piece, each month I spend a considerable amount of time to get all data right and present it in a useful way, including graphics. Starting in 2019, Boeing has decided to fully recognize the costs and revenues for military derivatives such as the Boeing P-8A Poseidon (based on the Boeing 737) and the Boeing KC-46A (based on the Boeing 767) in the Boeing Defense, Space, and Security segment rather than a partial recognition in the defense arm and a partial recognition in the commercial airplanes arm. We think this gives more clarity on Boeing’s commercial airplanes business but will continue to add orders and deliveries for military derivatives fully valued in our monthly overview as it gives us a somewhat broader insight in order and delivery values. Next to the monthly values for orders, we also have a tally for cumulated cancellations just like last year, but starting this year, we also have started putting a value on the cancellations and closely track cancellations and order reveals per customer.
Before we start I wanted to discuss some recent changes to this report series:
As part of our annual review of this monthly order and deliveries series, we have made a couple of changes regarding our tools and methodology:
- Subscribers of The Aerospace Forum requested access to order and delivery data, which I happily provided. Starting in November 2019, we have redeveloped that data overview to be viewed in a more appealing and useful form allowing subscribers to filter data in any way they want. The infographic generated in these reports are snapshots of interactive infographics that subscribers (including those on a free trial) of The Aerospace Forum have access to.
- In 2018, Boeing started keeping tracking of so called ASC 606 adjustments to better reflect their backlog. Th orders in the ASC 606 are unlikely to be delivered. As a result, I decided to count in-year adjustments as cancellations. However, as we compare Boeing order data (including cancellations) with Airbus order data, the comparison is somewhat skewed since we are including “yet to be cancelled orders” for Boeing while we don’t do that for Airbus. Additionally, by counting the ASC 606 adjustment as cancellations we are at the risk of generating duplicates in the cancellations tally, since it could very well be that an ASC 606 adjustment is added this year while the actual cancellation happens in the next year. In the old set up, we would count these cancellations and their values double. In the new set up, we count the contractual changes while we also keep track of ASC 606 adjustments but no longer count them as cancellations. Overall this should add to the consistency and accuracy of the series.
Orders in December
During the month, Boeing received a total of three orders valued at $333.8 million after discounts:
- Southwest Airlines (LUV) ordered one Boeing 737 MAX.
- An unidentified customer ordered one Boeing 787-8.
- An unidentified customer ordered one Boeing 787-9.
The following changes in the order book took place in December:
- Bank of Communications Leasing and China Eastern Airlines were revealed as customers for one and four Boeing 737-800s.
- Southwest Airlines (LUV) cancelled an order for one Boeing 737 MAX while also ordering one aircraft during the month.
- Azerbaijan Airlines was revealed as the customer for one Boeing 777-200LR.
- An order from ECAir for one Boeing 787-8 was officially cancelled after Boeing already had recorded the order in its ASC606 adjustment tally (orders unlikely to ever be delivered).
- Saudia Arabian Airlines was disclosed as the customer for one Boeing 787-10.
- Two unidentified customers cancelled three Boeing 787-9 orders.
During the month we saw extremely weak order inflow with just three units, which partially are re-orders of cancelled orders.
Year-over-year gross order inflow decreased by 215 units to 33 units. The three- and five-year averages for November are 257 and 231 net sales, respectively. For December, the gross order inflow was three units. What we are seeing is that the order inflow was far below the three- and five-year average. This is the direct result of the Boeing 737 MAX crisis, which has dented the jet maker’s ability to finalize sales. Cancellations including ASC 606 adjustments increased by six units to 333 while contract cancellations climbed to 192 units.
If we look at the data for 2019 and compare it to the previous year, we observed that Boeing ends the year with 54 orders after contractual cancellations but before ASC 606 adjustments and-87 after ASC 606 adjustments. Whichever value you choose to pick as Boeing’s year-end order figure, it’s way lower than the 893 net sales booked last year. This significant decline in net orders and order activity is driven by Boeing customer Jet Airways ceasing operations, the Aeroflot cancellation, the order conversion from Emirates and the Boeing 737 MAX crisis while customers currently are not feeling to urge to finalize business with Boeing.
Deliveries in December
For 2019, Boeing has set a delivery target of 895-905 units. In December 2018, AeroAnalysis set a 2019 delivery estimate of 891 units, including tanker deliveries, and up to 917 at the high end, the midpoint is at 904 deliveries. These numbers were reasonably close to Boeing’s guidance prior to the jet maker pulling its full-year guidance in the aftermath of the Boeing 737 MAX jet.
In December, the company delivered 35 aircraft, an increase of 11 units compared to last month:
- Boeing delivered six Boeing 737s, clearly below the production rate as Boeing is running low on Boeing 737NGs backlog and cannot deliver the Boeing 737 MAX.
- Boeing delivered no Boeing 747s during the month.
- Boeing delivered three Boeing 767s during the month, two freighters and one tanker.
- Boeing delivered five Boeing 777s, one Boeing 777-200LR and four Boeing 777-300ER, slightly higher than the production rate of 3.5 aircraft per month.
- Boeing delivered 21 Boeing 787s, two -8s, 15 -9s and four -10s, which is much higher than the production rate of 14 aircraft per month.
The delivery numbers continue to be impacted by the Boeing 737 MAX grounding and that’s set to continue well into 2020. What we are seeing is the delivery profile of a company that’s facing incredibly big pressure at the moment. We’re actually seeing what Boeing’s delivery figures look like when the company has no single aisle product. On top of that we are seeing that Boeing seems to be experiencing challenges delivering aircraft in line with the loading and roll-out rates of the Dreamliner program.
For 2019, Boeing expected book-to-bill in the one-to-one range. Obviously, shareholders were hoping to see Boeing having a book-to-bill ratio of one or higher for the full year. With the recent problems with the MAX, a strong order year for Boeing was impossible.
Looking at the monthly book-to-bill ratios does not say a lot, but you have to start somewhere. In December, Boeing booked three gross orders while delivering 35 aircraft, indicating a book-to-bill ratio of 0.09. In terms of value, this ratio also was 0.07.
For 2019, we are looking at a gross book-to-bill of 0.64 and 0.69 in terms of value. The net figures, however, also reflect the big cancellation that the jet maker had to add to its books: 0.14 when looking at the units and 0.30 when looking at the value.
At the start of the year, expectations were high for Boeing regarding order inflow and deliveries. All of that is gone and Boeing is in crisis mode, where orders and deliveries only matter to a certain degree and rebuilding trust in Boeing, its people and products has the highest priority.
We’re expecting that this type of order overviews with a low order inflow and delivery profile will continue as long as the Boeing 737 MAX remains grounded. With that in mind, we can conclude that 2019 will be a bad year for Boeing – a self-inflicted bad year. The company ended the year with 54 net orders or -87 when including ASC 606 adjustments. If we apply the cancellations in year of order, then we can see that the last time orders were this low was in 2003. Deliveries didn’t look a lot better with just 380 marking the lowest level since 2005. Probably just a coincidence, but we see that Boeing’s orders and deliveries are on the levels we saw 15 years ago, around the same time, where Boeing’s commercial aircraft development headache started that would eventually result in the deep crisis the company is in now.