DLAKF - Boeing Stock Outperforms Deliveries Surge

2023-04-12 13:06:57 ET

Summary

• Boeing saw healthy and balanced order inflow in March.
• Boeing deliveries are at highest point since the traditional strong December month.
• We're looking for more signs of consistently getting 50 airplanes out the door each month.
• While many focus on the negatives, reality is that Boeing and Airbus are currently delivering roughly the same number of airplanes.

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

Boeing Stock Performance

What's interesting is that with good news coming in such as strong order, deliveries and the return of the Boeing 737 MAX in China , Boeing stock only reached market performance in March. However, that's still better than the underperformance observed in 2023. The reason why Boeing stock has not outperformed in March is because the defense segment will see further cost growth in the first quarter results and beyond that there are further delays in the crewed Starliner mission and the US presidential airplane program remains plagued. So, commercial is a bright spot while defense is a significant pressure on results even after reorganizing the company structure.

Year-to-date, we continue to see outperformance driven by some positives that are becoming more and more visible in current commercial airplane performance as well as planning for production ramp ups.

Boeing March 2023 Airplane Order News

In March, Boeing booked 60 gross orders, marking a sequential decrease of 60 orders, with 67% of the order inflow for single aisle jets and 33% for wide body airplanes:

• Japan Airlines ( OTCPK:JAPSY ) ordered 21 Boeing 737 MAX airplanes.
• Luxair ordered 2 Boeing 737 MAX airplanes.
• An unidentified customer ordered 17 Boeing 737 MAX airplanes.
• EVA Air ordered 5 Boeing 787-9 airplanes.
• Lufthansa ( OTCQX:DLAKF ) ordered 7 Boeing 787-9 airplanes.
• An unidentified customer ordered 8 Boeing 787-8 airplanes.

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

• Singapore Airlines ( OTCPK:SINGY ) cancelled orders for 8 Boeing 737 MAX airplanes.
• An unidentified customer cancelled orders for 8 Boeing 737 MAX airplanes.
• AerCap ( AER ) cancelled orders for 2 Boeing 787-10 airplanes.
• An unidentified customer cancelled orders for 4 Boeing 787-8 airplanes.
• AerCap selected GE ( GE ) as the supplier for 6 Boeing 787-9s and 2 for Rolls Royce ( OTCPK:RYCEF )
• Air Lease Corporation ( AL ) took over one delivery slot from Oman Air for the Boeing 787-9.
• American Airlines (AAL) was identified as the customer for one Boeing 787-8.
• CES Leasing was identified as the customer for one Boeing 777F.
• China Postal Airlines was identified as the customer for one Boeing 777F.
• China Southern Airlines was identified as the customer for one Boeing 777F.
• Greater Bay Airlines was identified as the customer for 15 Boeing 737 MAX airplanes.
• Japan Airlines was identified as the customer for one Boeing 787-8.
• Orders from Norwegian Air Shuttle ( OTCPK:NWARF ) were transferred to Norwegian Air.
• Scoot, a subsidiary of Singapore Airlines, transferred orders for three Boeing 787-9s to Singapore Airlines and converted them to the bigger Boeing 787-10.
• Southwest Airlines ( LUV ) was identified as the customer for one Boeing 737 MAX.
• TUI Travel was identified as the customer for one Boeing 737 MAX.

After a relatively soft February month, March looked a lot better with Q1 gross orders doubling in March. We saw the order from Lufthansa that I discussed earlier in the order books as well as the order from Japan Airlines for the MAX, which is a positive as Japan Airlines opted years ago to replace the Boeing 777 with the Airbus A350, and so it's good sign to see that for now Japan Airlines remains committed to Boeing for the single aisle product. Furthermore, the obvious positive was the wide body mix. Normally I would like to see a 40-60 distribution between widebodies and single aisles, but the March performance was not bad at all.

On the cancellation and other mutations side, I wouldn’t say that there were any big negative outliers. There was a lot of activity, but that's normal in the course of business. Maybe most interesting items were the cancellations from Singapore Airlines and furthermore with the geopolitical tension between China and the US, it is interesting to note that China is continuing to take delivery of Boeing freighter airplanes.

So, it was a strong month for Boeing with 60 orders valued of $4.8 billion, while it scrapped 22 orders valued at $1.6 million from the books, bringing the net orders to 42 orders with a value of slightly over $3.2 billion. A year ago, Boeing booked 53 orders and 15 cancellations, bringing its net orders to 38 units with a net order value of $2.3 billion. So for March 2023, we see an uptick in gross order airplane orders and value as well as a significant increase in net orders and value.

During the month, ASC 606 reduced by 23 units. Three on the Boeing 737 program and 19 on the Boeing 777 program, possibly related to an order for the Boeing 777X from All Nippon Airways. 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. Boeing currently has 801 orders for which the additional criteria are not met.

Boeing March 2023 Aircraft Delivery News

In March, Boeing delivered 64 jets compared to 28 in the previous month. The US jet maker delivered 53 single-aisle jets and 11 wide-body aircraft with a combined value of $4.4 billion:

• Boeing delivered 53 Boeing 737 airplanes including 53 Boeing 737 MAX airplanes and one Boeing P-8A.
• Boeing delivered one Boeing 767-300F to FedEx ( FDX )
• Boeing delivered three Boeing 777Fs, all to Chinese customers.
• Boeing delivered 7 Boeing 787s consisting of 2 -8s, 4 -9s and 1 -10s.

As we grew used to, March saw an uptick in delivery numbers with some clear positives. The first positive to me were the 53 deliveries on the Boeing 737 program. Ideally, we see 10 deliveries per month from inventory and another 30 from the production line. So, at least 40 deliveries. Boeing exceed that number in March which is a positive sign but we need to see some sequential months of hitting those 40 minimum deliveries consistently. We also see that the Boeing 767 and Boeing 787 are in the mix again. Both airplanes had a brief delivery stop discussed here and here .

So overall, I'm seeing big positives but I would like to see those positives being consistent rather than being end-of-quarter events. Compared to last year, March delivery numbers increased by 23 units from 41 deliveries to 23 deliveries while the value of those deliveries increased from $2.5 billion to $4.4 billion reflecting a combination of improved volumes as well as delivery mix.

The book-to-bill ratio for the month was 0.9 in terms of orders and 1.1 in terms of value, while the cancellation rate was 36.7% measured against the order inflow, and 0.4% when measured against the backlog. The book-to-bill ratio for the year is looking extremely strong with a ratio of 0.9 measured by units and 1.2 measured by value. As I noted previously, we are looking for book-to-bill ratios higher than one, but even when that's achieved, these ratios should also be placed in context as we see strong demand but significant pressure from the supply side to translate orders into deliveries.

What's 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. Overall, I'm expecting around 535-595 deliveries.

How Do Boeing Airplane Deliveries Compare To Airbus?

Boeing delivered 64 airplanes to customers in March, while Airbus delivered 61 airplanes. In the first quarter Boeing delivered 130 jets compared to 127 for Airbus. So, while seemingly Boeing is the manufacturer with the bigger problems, both manufacturers delivered the same number of airplanes in the first three months of the year.

Conclusion: Boeing Stock Remains A Buy Despite Challenges

Generally, I don’t see major challenges for Boeing to bag orders for its key programs. On the order side, we continue to see leads materializing. The bigger orders that Boeing announced recently do take some time to be fully finalized, so we don’t see those reflected yet but we do see healthy demand for commercial airplanes with demand revival in the wide body segment.

As I have been pointing out for months, probably for the better part of the past three years, the bigger issue is on delivery side. 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. March was in many ways a positive one for Boeing, but realistically I would like to see those strong numbers being achieved more consistently and that gives more confidence that we have left the worst of the supply chain issues behind us.

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

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