Chicago: Boeing Co.’s order stockpile shrank further last month as more airlines and lessors backed out of commitments for the grounded 737 Max jetliner in a market devastated by the coronavirus pandemic.
The planemaker recorded 60 Max cancellations in June, including 47 that were already announced, according to the company’s website Tuesday. The tally excluded Norwegian Air Shuttle ASA’s move to scrap all 97 of its remaining Boeing jets on order, since those deals haven’t been officially terminated. But the orders in peril from shaky buyers rose by 123 last month.
Customers have scrapped 373 orders for the Max this year as collapsing travel demand complicates Boeing’s efforts to shore up a plane that is supposed to be a critical source of cash. The company’s best-selling jet faces a long, slow comeback once regulators end a flying ban imposed in March 2019 after two fatal crashes. So far, about 2,480 deliveries of the Max have been postponed by at least a year due to disrupted production, according to Bank of America Corp.
“Once the aircraft is cleared to fly, the demand outlook for the product is uncertain,” Bank of America analyst Ron Epstein said in a report last week, noting that the Max is “strategically disadvantaged” compared with its Airbus SE counterpart, the A320neo.
“When demand returns to commercial aerospace, we expect operators to choose the untainted program first, before opting to order a Max,” Epstein said.
Despite the sobering results, Boeing rose less than 1% to $176.07 at 1:11 p.m. in New York as the broad market seesawed.
Aircraft lessors have been working with Boeing to pare speculative orders as the planemaker revises its delivery schedules, spurring a big chunk of recent Max cancellations. Avolon Holdings Ltd. dropped 17 aircraft, while BOC Aviation scrubbed a deal for 30 and Aviation Capital Group trimmed five of its orders in June.
“We have and will continue to work with our customers on specific timing and adjustment to deliveries,” Boeing Chief Financial Officer Greg Smith said in a statement. The order revisions will help dictate production rates to balance supply and demand.
Net sales for all commercial aircraft have dropped by 323 planes so far this year — or 784 after including an accounting adjustment for customers in poor financial health and those intent on revising contracts.
Deliveries have also been hurt by the pandemic raging in the U.S. Many overseas customers are still unable to enter the country to take delivery of new planes, while Boeing temporarily shuttered factories in virus hot spots in Washington and South Carolina. The 20 aircraft delivered by the company in the second quarter is the lowest tally since at least 1980, according to Bloomberg Intelligence.
“The deliveries just don’t surprise us,” said Bloomberg Intelligence analyst George Ferguson. “We knew that this was going to be rough. Obviously with the Max down, it doesn’t help.”
Still, there were faint glimmers of good news for Boeing.
The company delivered 10 aircraft in June, including three of its 787 Dreamliners. That’s a slight improvement from the four total shipments Boeing recorded in May, when none of of its marquee wide-body jets were sold or delivered. And while the U.S. planemaker recorded just one gross aircraft order in June — a 767 freighter for FedEx Corp. — Airbus was shut out of new sales for a second consecutive month.
And Boeing’s defense business, long overshadowed by booming jetliner sales, is now poised to help the Chicago-based company weather the market turmoil in civil aviation, Ferguson said. That point was underscored Monday, when the Pentagon and Boeing unveiled a $1.2 billion deal for the first eight souped-up F-15EX fighter jets.
All told the F-15 contract awarded last year could be worth as much as $23 billion over the next 10 to 15 years, the U.S. Air Force said in an email.
“It’s a reminder that they’re important to the Pentagon,” Ferguson said of Boeing, which is the second-largest U.S. defense contractor.- Bloomberg
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