HA - Boeing Stock Outperforms As Airplane Deliveries Grow

Summary

• Boeing stock continues to outperform.
• Boeing deliveries grew slightly year-over-year, but were held back by the Dreamliner delivery stop.
• Boeing continues to gather orders, but eyes are on production and delivery stability which remains absent.

Each year, I provide monthly overviews for orders, cancellations, deliveries, and other order book mutations for Bo eing ( BA ). While the release of monthly orders and other order news does not always directly impact the Boeing stock price, it's important to keep track of the orders and deliveries because this provides the smallest blocks of information from which we can assess how things are going for the European jet maker and detect trends early on. In this report, I will be analyzing the Boeing orders for January 2023 as well as the deliveries.

Before I analyze the report, I would like to apologize for the delay of the monthly part for the Boeing orders and deliveries, but due to scheduling issues I was not able to provide the piece earlier but there still is significant value in analyzing the monthly numbers.

Why Did Boeing Stock Outperform?

During January, Boeing stock significantly outperformed the market, which I believe was driven by continued strong momentum for the stock since September. Furthermore there were some important events such as the first MAX flight in China reintroducing the airplane to the Chinese traveler and strong cash flow figures for 2022 in Boeing’s full-year earnings .

The year-to-date outperformance for Boeing is less stellar. Boeing did not get much lift from an announcement of a big order from Air India split between the US jet maker and its European counterpart, but the anticipation of that order was already reflected in the stock price prior to the announcement fueling the outperformance. The geopolitical tension between China and the US and related incidents did not help Boeing to maintain its strong outperformance and this was further pressured by a delivery stop for the Boeing 787 program.

Boeing January 2023 Airplane Orders Decline

In January, Boeing booked 55 gross orders, marking a sequential decrease of 195 orders, with an appreciable split of 40% wide body orders and 60% single aisle orders:

• The US Air Force ordered 15 Boeing 767-2Cs, which serve as the base aircraft for the KC-46A multi-role tanker transport aircraft.
• Skymark Airlines ordered four Boeing 737 MAX airplanes.
• TUI Travel ( OTCPK:TUIFF ) ordered four Boeing 737 MAX airplanes.
• An unidentified customer ordered 25 Boeing 737 MAX airplanes.
• An unidentified customer ordered seven Boeing 787-10s.

During the month, the following changes were made to the order book:

• An unidentified customer cancelled orders for 39 Boeing 737 MAX aircraft.
• Macquarie AirFinance Limited assumed orders for 20 Boeing 737 MAX airplanes from ALAFCO.
• The GEnx-1B ( GE ) engine selection for one Boeing 787-9 ordered by Boeing Capital Corporation was transferred to a “No Selected engine” category.
• Hawaiian Airlines ( HA ) selected GEnx-1B turbofans for one Boeing 787-9.
• An unidentified customer selected GEnx-1B turbofans for five Boeing 787-9 airplanes.

Boeing started the year with a nice 60-40 order mix between single aisle and wide bodies and that's actually the mix that we're looking for. However, this was not completely reflective of passenger and cargo demand as it included orders for 15 tankers. Boeing logged 55 gross orders with a value of $5 billion, while it scrapped 39 orders valued at $2 billion from the books, bringing the net orders to 16 orders with a value of $2.9 billion. A year ago, Boeing booked 77 orders and two cancellations, bringing its net orders to 75 units with a net order value of $6.6 billion. So for January 2023, we see a decline in gross order airplane orders and value as well as a significant reduction in net orders and value.

During the month, Boeing reduced the ASC 606 adjustments by 22 units for the Boeing 737 and seven units for the Boeing 787. ASC 606 Adjustments are orders for which a purchase agreement exists but additional requirements beyond the existence of a purchase contract are not met. An increase means that more orders are doubtful, while a decrease means that the additional requirements are met or the order that was considered doubtful was cancelled. During the month 29 orders were removed from the tally as it seems that the additional criteria to be counted toward the backlog were met leaving Boeing with 823 orders for which the additional criteria are not met.

Boeing January 2023 Aircraft Deliveries Increase

In January, Boeing delivered 38 jets compared to 69 in the previous month. The US jet maker delivered 35 single-aisle jets and three wide-body aircraft with a combined value of $2.3 billion:

• Boeing delivered 35 Boeing 737 MAX family airplanes.
• Boeing delivered three Boeing 787 aircraft consisting of two 787-9s and 787-10s.

Boeing started the year relatively soft with no Boeing 767, Boeing 777 or Boeing 747 deliveries. However, that's no reason for concern. The first month always is somewhat soft as is the entire quarter. Since the 26 ^th of January, Boeing did not deliver any Boeing 787s. It's possible that deliveries of the Boeing 787 were somewhat light due to the delivery stop. February is expected to be light on deliveries as well, which means that overall the first quarter will come in light as often is the case resulting in a negative free cash flow. Compared to last year, January delivery numbers increased by six units from 32 deliveries to 38 deliveries while the value of those deliveries increased from $2.1 billion to $2.3 billion, driven by an unfavorable mix.

The book-to-bill ratio for the month was 1.4 in terms of orders and 2.2 in terms of value, while the cancellation rate was 70.9% measured against the order inflow, and negligible when measured against the backlog. The book-to-bill ratio for the year is looking extremely strong. As I noted previously, we are looking for book-to-bill ratios higher than one, but even when that is achieved, these ratios should also be placed in context as we see strong demand but significant pressure from supply side to translate orders into deliveries.

What Is Boeing's Delivery Target For 2023?

For 2023, Boeing has not provided an official delivery target but the company expects 400 to 450 Boeing 737 deliveries and around 70-80 Boeing 787 deliveries. The current disruptions so overall I am expecting around 535-595 deliveries.

How Do Boeing Airplane Deliveries Compare To Airbus?

Boeing delivered 38 airplanes to customers in January, while Airbus delivered 20 airplanes. So, while seemingly Boeing is the manufacturer with the bigger problems the US jet maker actually has the better delivery numbers for January.

Conclusion: Boeing Stock Remains A Buy Despite Challenges

Generally, I don’t see major challenges for Boeing to bag orders for its key programs. The bigger issue is the delivery flow which is not smooth. The company has a production rate of around 30 Boeing 737 aircraft per month and a significant inventory of Boeing 737 MAX jets awaiting delivery which should allow for a significantly higher delivery rate and the same holds for the Boeing 787 program, but we are seeing that supply chain issues and program specific issues are holding the delivery numbers back. This year should see significantly better delivery numbers, but the reality is that production does not quite seem as smooth as it should be.

Nevertheless, with the significant improvement in delivery expected this year I do think that Boeing remains a buy.

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