AC:CC - Boeing Stock Underperforms As Deliveries Tumble

2023-05-10 12:50:07 ET

Summary

• Boeing orders saw an appreciable mix between single aisle and wide body airplanes.
• Boeing deliveries are under pressure, driven by seasonality and to a major extent by new problems on the Boeing 737 MAX program.
• Boeing stock has started to underperform, but its value is long term, which shouldn't be clouded by short-term events being projected forward.

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 April 2023 as well as the deliveries.

Boeing Stock Performance

I could do a long discussion on Boeing’s stock price trajectory, but I think it's very simple and does not require a lot of explanation. Boeing stock has been outperforming the market significantly since late last year and because of that you might see some months were the stock takes a break and underperforms. However, the stock is now also underperforming and that's driven by the temporary reduction in Boeing 737 MAX deliveries.

In a detailed analysis , I discussed the impact of reduced deliveries on the share price uniquely describing the path from the actual value of the airplane into the share price. We largely see that the current share price around $200 incorporates the pressure I showed in a quantitative analysis.

Boeing April 2023 Airplane Order News

In April, Boeing booked 34 gross orders, marking a sequential decrease of 26 orders, with 47% of the order inflow for single aisle jets and 53% for wide body airplanes:

• BOC Aviation ( BCVVF ) ordered three Boeing 737 MAX airplanes.
• Luxair ordered two Boeing 737 MAX airplanes.
• An unidentified customer ordered 11 Boeing 737 MAX airplanes.
• An unidentified customer ordered one Boeing 777F.
• An unidentified customer ordered two Boeing 787-8 airplanes.
• An unidentified customer ordered 15 Boeing 787-8 airplanes.

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

• Air Canada ( ACDVF ) was identified as the customer for one Boeing 787-9.
• Air Lease Corporation ( AL ) selected GEnx turbofans for one of the Boeing 787-10s on order.
• American Airlines transferred five Boeing 787-8s on order to Boeing Capital Corporation.
• Arajet cancelled orders for three Boeing 737 MAX airplanes.
• Azerbaijan was identified as the customer for eight Boeing 787-8s.
• Southwest Airlines was identified as the customer for one Boeing 737 MAX.
• An unidentified customer cancelled orders for one 18 Boeing 737 MAX airplanes.

April was an interesting month for Boeing. It was not a month with a huge order inflow, but the interesting part was the division between single aisle and wide body orders. It’s not often that we see over half of the orders being for wide body airplanes, but realistically it shows the continued market appeal of the Boeing 787 which is important as the US jet maker aims to increase production to five airplanes per month by the end of the year.

So, it was not exceptional for Boeing with 34 orders valued of $3.4 billion, while it scrapped 21 orders valued at $1.1 billion from the books, bringing the net orders to 13 orders with a value of $2.3 billion. A year ago, Boeing booked 46 orders and 34 cancellations, bringing its net orders to 12 units with a net order value of $0.6 billion.

So the year-over-year figures also show that April was not an exceptional month even though on better mix the value of the net orders was higher. Year to date, Boeing booked 154 orders and 85 cancellations bringing its net orders to 69 valued $8.5 billion. As a reference, last year Boeing booked 213 gross orders and 157 net orders valued $11.4 billion. So, year-over-year Boeing is trailing last year's figures, but with an air show coming up in June it will be interesting to see whether Boeing has any sales in the pipeline.

During the month, ASC 606 reduced by 25 units, all of which were for the Boeing 737 MAX. ASC 606 adjustments adjusts for 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 776 orders for which the additional criteria are not met.

Boeing March 2023 Aircraft Delivery News

In April, Boeing delivered 26 jets compared to 64 in the previous month. The US jet maker delivered 18 single-aisle jets and eight wide-body aircraft with a combined value of $2.2 billion:

• Boeing delivered 18 Boeing 737 airplanes including 17 Boeing 737 MAX airplanes and one Boeing P-8A.
• Boeing delivered one Boeing 767-300F to FedEx ( FDX )
• Boeing delivered one Boeing 777Fs to a Chinese customer.
• Boeing delivered 6 Boeing 787s consisting of 0 -8s, 3 -9s and 3 -10s.

As usually expected, March saw an uptick in delivery numbers and delivery numbers were lower in April which is the first month of Q2. However, deliveries also were lower due to new issues found on the Boeing 737 MAX which I believe pressured delivery numbers by 13 to 23 units.

Compared to last year, April delivery numbers increased by nine units from 35 deliveries to 26 deliveries while the value of those deliveries increased from $2.5 billion to $2.2 billion showing that the decline in dollar value was lower than the relative decline in airplane deliveries.

The book-to-bill ratio for the month was 1.3 in terms of orders and 1.6 in terms of value, while the cancellation rate was 61.8% 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 1 measured by units and 1.3 measured by value. As I noted previously, we're 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 and that holds especially for the April month.

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 26 airplanes to customers in April, while Airbus delivered 54 airplanes. In the first four Boeing delivered 156 jets compared to 181 for Airbus. Boeing and Airbus have been delivering roughly the same number of airplanes in the first quarter, but due to the issues with the Boeing 737 MAX the US jet maker is now trailing its European rival.

In Other Boeing News

As I have recently been limited in the in-demand quality analysis I can provide to the reader, I'm introducing a new section covering news that I cannot analyze due to volume constraints but are still relevant for investors. This includes the latest on Azerbaijan Airlines expanding its long-haul fleet, detailed in The Aerospace Forum.

Not included in Boeing’s April overview is the order for 150 Boeing 737 MAX 10 airplane from Ryanair ( RYAAY ). I have covered the prospective order with all its ups and downs for the past two years and one of my main conclusions was that this deal had to happen eventually if Ryanair wanted to remain competitive. We now see that the order is announced and will be placed in the order book when finalized with deliveries planned between 2027 and 2033 with big financial positives for both parties.

Spirit AeroSystems ( SPR ) has provided more details on the costs of the fixes requires to the Boeing 737 MAX. The first fixes already have been completed and conforming fuselages are shipped to Boeing. While Boeing deliveries remain pressured, it's good to look at what suppliers have to say and see that they are getting control of the situation and in fact Spirit AeroSystems will largely be absorbing the costs that Boeing and airlines will have due to the vertical stabilizer issue.

Other good news is that the Boeing 737 MAX activity in China for which I track the data airplane by airplane is improving week by week and that also opens up opportunities for Boeing to start unwinding its inventory built for China.

Conclusion: Boeing Stock Remains A Buy Despite Challenges

While investors might not be wrong for softening their bullish view on Boeing for the short term, I do think that if you focus on what Boeing might or might not deliver in the second quarter you will eventually miss the bigger picture for this year and the bigger picture for the longer term. Challenges remain in all time frames but the trends and outlooks are positive and they're bigger positives than the near-term pressures Boeing faces.

On the order side, we're seeing continued interest in the Boeing 737 MAX and the Boeing 787 with orders from Ryanair, Air India and United Airlines (UAL) as a testimony to the continued market appeal of the jets. On delivery side pressures remain, but with increases in production rate for the Dreamliner and a fourth line to be opened in Everett next year, Boeing is actually equipping itself to handle volumes above pre-pandemic levels. So, I don’t focus on short-term pressures that are encapsulated within the guidance to make bear cases. I focus on where the value is and that's the longer term in line with the nature of the industry. What might be a sell point for short-term focused investors is highly likely to be a buy point for long-term focused investors.

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