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 August. You can read the July report here.
What should be kept in mind is that, while this seems to be a simple summarizing piece, 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 inside 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.
Orders in August
During the month, Boeing received a total of 6 orders valued at $1.1B after discounts:
- Paris Airshow 2019 Order: China Airlines completed its order for six Boeing 777Fs as announced during the Paris Airshow, finalizing an order for three jets. The other three jets already were booked in July. Contrary to what we reported, the deal is fully finalized at this stage (A previous report indicated that the deal was fully firmed by July.)
- A business jet customer ordered two Boeing 787-9 BBJs.
- Turkmenhowayollary Agency (Turkmenistan Airlines) ordered one Boeing 777-200LR.
During the month, there were no cancellations but the following changes in the order book took place:
- China Southern Airlines and Juneyao Air were revealed as customers for one Boeing 787-9 each.
- China Southern Airlines and KLM Royal Dutch Airlines were revealed as customer for one and two Boeing 777-300ERs.
- A Business Jet Customer cancelled orders for three Boeing 737 MAX aircraft, possibly swapped for the Boeing 787-9.
During the month we saw appreciable order inflow for the Boeing 777 and Boeing 787. Boeing needs the order inflow for the Boeing 787 to continue to maintain a comfortable backlog cushion while the Boeing 777 program increasingly relies on freighter orders.
Year-over-year gross order inflow decreased by 93 unit to 6 units. The three- and five-year averages for August are 51 and 62 net sales, respectively. For August, the net order inflow was three units. What we are seeing is that the order inflow was far below the three and five-year average. We are seeing that Boeing’s ability to book orders has been dented because at this point booking sales is not the company’s utmost priority, and for airlines, there’s no reason to finalize orders at this stage. Cancellations including ASC606 adjustments increased by three units to 230 units.
If we look at the data for the first eight months of 2019 and compare it to the previous year, we observed that Boeing’s order tally is now negative for the year at -85 units, up from -88 in the previous month, indicating that were more cancellations than orders while last year Boeing still had 581 net orders. This significant decline in net orders and order activity is driven by Boeing customer Jet Airways ceasing operations and the Boeing 737 MAX crisis.
Deliveries in August
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 August, the company delivered 18 aircraft, a decrease of one unit compared to last month:
- Boeing delivered one Boeing 737, clearly below the production rate as Boeing is running low on Boeing 737NGs 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 three Boeing 777s, 2 Boeing 777 Freighter and 1 Boeing 777-300ER which is in line with the production rate for the current generation Boeing 777 jets.
- Boeing delivered 11 Boeing 787s, 7 -9s and 4 -10s, which is lower than the production rate of 14 aircraft per month.
Deliveries were down by one unit in August. The delivery numbers continue to be impacted by the Boeing 737 MAX grounding and that’s to continue well into late 2019 and probably early 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 are hoping to see Boeing having a book-to-bill ratio of 1 or higher for the full year. With the recent problems with the MAX, we no longer are expecting a strong order year for Boeing.
Looking at the monthly book-to-bill ratios does not say a lot, but you have to start somewhere. In August, Boeing booked six gross orders while delivering 18 aircraft, indicating a book-to-bill ratio of 0.33. In terms of value, this ratio was .46.
For the first eight months, we are looking at a gross book-to-bill of 0.53 and .67 in terms of value. The net figures, however, also reflect the big cancellation that the jet maker had to add to its books: -0.3 when looking at the units and 0.22 when looking at the value. This indicates that the negative order inflow was around 30% of the number of aircraft delivered and on net basis the value additions to the order book are small relative to the delivery value of the aircraft.
August was a slow month for Boeing, which is the “new normal” for Boeing. For good reason, the deliveries of the Boeing 737 MAX were halted in March and this has been visible in the delivery profile since March.
At the start of the year, expectations were high for Boeing regarding order inflow and deliveries. All of that is gone now 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 already conclude that even if Boeing starts deliveries later this year, 2019 will be a bad year for Boeing… a self-inflicted bad year.