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From the 17th of June until the 23rd of June, the 2019 Paris Airshow will be hosted consisting of 4 trading days and 3 days open to the general public. The trading days are highly interesting as it gives an idea of what orders or plans jet makers such as Boeing (BA) and Airbus (OTCPK:EADSF) have in the pipeline. For that reason, I have been covering the trade days of the air show for the past years. The Paris Air Show is one out of 2 (the Dubai Airshow and Farnborough International Airshow) that I cover exclusively for readers on Seeking Alpha. Each day you will get an overview of the orders and thoughts on the trading day.

In the coming days, we will look at what orders news or aircraft launches we can expect (or not). However, because the air shows consist of announcements that are ‘sales to be finalized’, it’s extremely interesting to look at how much of the announcements truly materialized during the Paris Airshow of 2017 (Mind: the event is hosted every 2 years). Before we look ahead at what we can expect for the show, we will first look back. So, by the first week of July, when we have all numbers wrapped up and verified, you will have an extremely detailed coverage.

Without further ado, let’s have a look at the order announcements from Boeing and Airbus during the previous Paris Airshow.

We extracted the Airbus and Boeing announcements from the AeroAnalysis website:

Table 1: Airbus and Boeing order announcements Paris Airshow 2017 (Source: AeroAnalysis)

As you can see, the sheet is huge. So, we are going to break it apart in several components. First, we will run roughly the same analysis for Boeing and Airbus. So, one time we filter the Boeing orders out and one time we filter the Airbus orders out. The only difference is that since we can’t filter Boeing’s order per subtype for the Boeing 737 MAX, those conversions whether firm or tentative have been removed.

Then we look for the following:

  • The customers revealed during the show, are they still in the books?
  • Are the new firm orders still in the books?
  • Were there any options from firm agreements converted to orders?
  • Were there any tentative agreements firmed to orders?
  • Were there any options firmed that were part of a tentative agreement?

Boeing

Table 2: Boeing customer reveals Paris Airshow 2017 (Source: AeroAnalysis)

The first interesting thing in Boeing’s overview can already be seen when we look at the customer reveals. Customer reveals are orders that were already in the order book but as the name states the customer was revealed during the air show. What we see is that 15 out of 35 or 40% was cancelled due to Monarch Airlines ceasing operations, just months after being revealed as the customer for these jets. Not a fine moment for Boeing, but this happens from time to time. Orders from Mauritania Airlines and Tassili Airlines have already been fully delivered.

Table 3: Boeing firm orders Paris Airshow 2017 (Source: AeroAnalysis)

While orders can be firm it’s a common saying that no order is firm until the aircraft is delivered. However, for Boeing, we see that all of the 154 orders that were announced all are still in the books two years after the deals were announced. Orders from Qatar Airways are there to cater growth for Air Italy, the airline which it invested, and are added to the unidentified customer category. What we also see is that orders from Chinese customers CALC and Okay Airways are still in the books, despite turmoil between the US and China. It once again shows that even amidst political consternation, the orders are not dropping out of the books.

Table 4: Boeing options as part of firm agreements Paris Airshow 2017 (Source: AeroAnalysis)

The only firm agreement, which included options, was the order from Qatar Airways. At this point, it seems like this order has not been firmed. Boeing’s book show an entry in August 2018 for 40 Boeing 737 MAX aircraft, but we cannot say with certainty that this can be attributed to Qatar Airways; this is further amplified by the fact that in 2018 an unidentified customer tentatively agreed on purchasing 40 Boeing 737 MAX 200 jets. Boeing’s books don’t show a split out per subtype so we cannot say with full conviction to whom this order belongs.

We have now looked at all “firm” announcements from Boeing during the Paris Airshow of 2017 and what we see is that except for the Monarch Airlines order, all business booked during the show 2 years ago remained in place.

Table 5: Boeing tentative agreements Paris Airshow 2017 (Source: AeroAnalysis)

Table 5 shows something interesting. There were tentative agreements for 537 aircraft including 100 options. Out of these, we believe at least 238 and possibly 258 turned into orders or 50 to 60 percent of the tentative agreements has turned into an order.

Lrg 78710

Source: Boeing

From Boeing’s announcements we learn a couple of things:

  • Most firm orders announced as customer reveals remain in the books.
  • Firming options is a slow process.
  • 50% to 60% of the tentative agreements turn into a firm order.
  • Tentative agreements carry a significant degree of uncertainty.

The numbers really show why it is important not to become overly optimistic based on the air show headlines. It’s all nice to have those flashy headlines and big commitments, but slightly more than half really makes it to the book and even then, an order can still be cancelled or reviewed.

Airbus

Table 6: Airbus customer reveals Paris Airshow 2017 (Source: AeroAnalysis)

Now, we do the same for Airbus. First of all, we see that there was only 1 customer reveal during the 2017 Paris Airshow for Airbus. The order for 10 Airbus A350-900 from Ethiopian Airlines has remained in place.

Table 7: Airbus firm orders Paris Airshow 2017 (Source: AeroAnalysis)

Airbus received a total of 134 orders including a mega-order from GECAS and we found that none of these were cancelled. GECAS even converted some of its orders to the bigger A321neo. While Airbus did announce some options as part of firm agreements, Airbus didn’t announce any options according to our records.

Table 8: Airbus tentative agreements Paris Airshow 2017 (Source: AeroAnalysis)

What we see for the tentative agreements is comparable to Boeing: 57% of the tentative agreements was converted into a firm order (or conversion). Airbus had some tentative agreements with airlines in Iran, which has a low probability of ever being finalized and the Tibet Financial Leasing agreement had not been firmed as far as we could track. Viva Air Colombia has decided to arrange sale-and-lease-back arrangements for 15 Airbus A321ceo aircraft with GECAS (10 aircraft) and CDB Financial Leasing (5 aircraft) so these orders are still in the books, but under the lessor’s name.

Lrg A3501000

Source: Airbus

From Airbus’s announcements we learn a couple of things:

  • All firm orders announced as customer reveals remained in the books.
  • 50% to 60% of the tentative agreements turn into a firm order.
  • Tentative agreements carry a significant degree of uncertainty.

Conclusion

One thing we often hear when orders are being announced is that Airbus announces a lot of tentative agreements that will never be firmed or orders that will never see delivery. Having studied over 1,350 entries from the Paris Airshow, we can say that for both jet makers roughly the same thing holds and that is:

  • Firm orders tend to remain in the books; it takes significant changes to the health of the industry or airline strategies to force a cancellation.
  • Options, whether part of a tentative or firm agreement, are rather insignificant as it can take years for these options to be firmed if at all.
  • 50% to 60% of the tentative agreements turn into a firm order; around 360 aircraft out of roughly 650 aircraft under tentative agreement have been turned into a firm agreement.

The Paris Airshow 2019 starts next week. For investors the main takeaway is that while you might be seeing juicy headlines on big orders paying attention to the type of announcement is important. Additionally, orders even when firmed during the show only create a tiny cash flow due to the deposit being made. We will likely see some share price movement for Boeing and Airbus on order announcements, but that is merely fueled by headline reading than actual underlying financial performance supporting that share price change.