With COVID-19 hitting the travel industry hard, there also is a renewed focus on aircraft sales patterns. For the past few years, I have been providing monthly updates on Boeing (BA) and Airbus (OTCPK:EADSF) orders and deliveries. Over time that has given me a lot of data where orders and deliveries can be connected to order and delivery values. With the focus on how orders and deliveries are progressing vs. a year ago, we will look at how Boeing orders and deliveries moved during the first quarter of the year. The data used for this Boeing Q1 orders and deliveries analysis is available to subscribers of The Aerospace Forum allowing you to slice data interactively in almost any way you want.
Boeing Q1 2020 Orders
Table 1: Boeing commercial aircraft sales Q1 2019 and Q1 2020 (Source: AeroAnalysis)
|wdt_ID||Aircraft Family||Q1 2019||Q1 2020||Difference|
Based on current market conditions you would expect a significant decline in order activity and the first quarter also showed lower order inflow. Gross orders fell by 46 units or nearly 50% while net orders sank by 163 units to -147 units. What we see for Boeing is that across the entire product portfolio there was year-over-year reduction in orders with exception for the Boeing 747 which remained stable.
Last year Boeing 737 MAX cancellations were driven by the demise of Jet Airways which had 75 units ordered via Boeing Capital Corporation and another 125 directly ordered from Boeing. The 75 orders were cancelled while the other orders form Jet Airways were put in a separate category pending cancellation. Order inflow reductions in the wide body segment were driven by the absence of Boeing 777X orders this quarter contrary to last year when British Airways ordered 18 units and no sizable such as the order from Lufthansa for 20 units came in. You could say that COVID-19 is to blame for this reduction, but I think to a major extent the decline in orders and net orders has been driven by cancellations for the Boeing 737 MAX, which failed to re-enter service one year after the grounding.
From the Q1 2020 orders overview, there’s an apparent cooling in order activity, but I do think that’s more driven by the Boeing 737 MAX crisis than by the COVID-19 crisis.
What Figure 1 shows us is that Boeing wasn’t able to log positive net orders before COVID-19 spread fast in March. In March, we saw an acceleration in cancellation activity, but I do think that was primarily driven by the first Boeing 737 MAX deliveries hitting the stage where they were one year late and many other orders would be late by at least a year as well prompting customers to cancel their orders.
Either way, by dollar value we are looking at negative $3.2B worth of net orders booked in the first three months of 2020 vs. positive $9.4B in net order inflow in the same months last year. So, we are seeing a $12.6B reduction in order inflow. You could say this is due to the COVID-19 shock, but the reduction seems to be primarily driven by the Boeing 737 MAX crisis.
For Airbus and Boeing combined, we are seeing that net orders went from -42 net orders to 143 net orders this year. That, however, is not reflective of strength during the COVID-19 crisis but is due to an exceptionally strong January month for Airbus while Airbus had a difficult start last year. Boeing is seeing net order inflow decline, while Airbus is seeing net order flow increase year-over-year for the first quarter. So, there’s no uniform increase or decline in aircraft orders but I also don’t think that we already have seen a huge impact from COVID-19 on the order book and the coming quarters should give a clearer guidance on the outfall in the order books of each jet maker. In terms of dollar value we are looking combined net order values $12B in Q1 2020 vs. $1.8B last year. So, when lumping the sales figures we don’t see the decline in order activity yet, but that can be fully attributed to Airbus booking $15B in sales in January 2020. COVID-19 simply hasn’t really found its way to the order books yet or at least not to the extent that it offset orders booked in earlier months, and last year Airbus had some big contract terminations which also affect the comparison.
Whatever shock the backlog cannot absorb is going to be absorbed by the deliveries so it’s also important to have a look at the deliveries.
Boeing Q1 2020 Deliveries
The above figure shows a screengrab from our interactive data model available to subscribers of The Aerospace Forum splitting out the Q1 2020 deliveries by type and putting a market value on these aircraft. Boeing delivered 50 aircraft in Q1 2020 valued $7.3B. Boeing reported revenues of $6.2B. Accounting for revenues from military derivatives of commercial aircraft deliveries were indeed valued $6.2B as our model showed a $3 million difference with the reported figures.
Table 2: Boeing commercial aircraft deliveries Q1 2019 and Q1 2020 (Source: AeroAnalysis)
|wdt_ID||Aircraft Family||Q1 2019||Q1 2020||Difference|
What we observed is that year-over-year, deliveries decreased on all programs. The reduction on the Boeing 737 program clearly can be attributed to the Boeing 737 MAX being grounded, but the other declines are mainly driven by inability to deliver jets in the final days of March, possibly combined with reduced demand for air travel. Boeing deliveries fell by two thirds bringing a $6.8B decline in revenues. Even if we don’t consider the MAX impact there still was a $2B-$3B headwind to revenues due to inability to deliver jets or due to customer requests to defer delivery. So, we are seeing a combination of Boeing 737 MAX impact and COVID-19 impact on deliveries.
Boeing and Airbus had combined deliveries of 172 jets representing a 45% or 139 unit decline in deliveries driven by a combination of the Boeing 737 MAX crisis (roughly 35%) and challenges to manufacture jets as well as challenges for customers to take delivery of aircraft in an unprecedented setting in which there is virtually no demand for air travel. Combined delivery value fell from $25.1B to $15.3B representing a 40% decline in delivery value. Boeing was hit hardest accounting $6.8B of the drop versus $3B for Airbus.
Lower orders but COVID-19 impact better reflected in deliveries
The Boeing orders for the first quarter show that throughout the quarter Boeing had big challenges finalizing orders, which is more related to the Boeing 737 MAX crisis than to anything else. Deliveries were also dented, which to some extent was caused by the Boeing 737 MAX crisis but also due to COVID-19 forcing factory shutdowns and reducing demand for air travel. Airbus relied on strong order inflows in January for its year-over-year increase in orders while it faced an order book restructuring last year in the first quarter. Combined, Boeing and Airbus saw order value increase by $10B which is fully attributable to Airbus’ order inflow in January and weak Airbus net sales last year and shouldn’t be considered a sign of strength amidst the COVID-19 crisis. The COVID-19 crisis immediately impacted the supply side, but also the demand side and will have a more severe impact on the demand side going forward. Combined deliveries declined 45% with a $9.8B decline in deliveries year-over-year.
Currently I’m expecting pressure on net order inflow to persist and become clearer in the coming months as airline customers and lessors will be less inclined to place new orders and some might even cancel orders. It doesn’t mean that we won’t be seeing any orders at all, but there definitely will be a damper on order inflow. Some of the demand shock is going to be absorbed by the order inflow, another part by the backlog but we also are seeing that deliveries are directly affected. It really reflects how immediate the cut off in supply and demand has been and how much pressure it unleashed on airlines. Going forward, production rates have been reduced to recalibrate for a new reality. It remains interesting to see how well the backlog will hold up in the coming months, as healthy backlogs will be part of the jet maker’s assessment to increase production again in the future.
The Aerospace Forum is the most subscribed-to service focusing on investments in the aerospace sphere, but we also share our holdings and trades outside of the aerospace industry. As a member, you will receive high-grade analysis to gain better understanding of the industry and make more rewarding investment decisions.