2023-06-28 19:55:51 ET
Summary
- The Boeing Company booked big Air India order during Paris Airshow, but otherwise had a very quiet airshow.
- Despite absence of significant orders or new business, sales opportunities continue to exist.
- Backlog assessment shows that Boeing's production plans are firmly supported by demand.
- Further upside to the single aisle production rate continues to exist, potentially pushing production to over 70 airplanes per month.
The Paris Airshow was hosted earlier this month. In a separate report I previewed the airshow with a list of possible orders and tracked the order activity for subscribers of The Aerospace Forum who were also given access to our interactive airshow order tracker . In this report, I will be looking at the order activity for The Boeing Company (BA).
More importantly, I will provide a dollar value of the orders, which is relevant to investors even more so in a time where Boeing and Airbus (EADSF) have stopped sharing list prices even though in a model agreement those list prices do matter for down payments. Furthermore, I will discuss which orders are actually accretive to the order book, and I will discuss the backlog addition for each program and how that feathers into the long-term production plans.
Boeing: Big Order, Little Excitement
In total, there were orders and announcements, with 359 orders and commitments valued $24.8 billion. The orders and announcements included 297 Boeing 737 MAX airplanes, 50 Boeing 787s, 10 Boeing 777Xs, and two Boeing 737 Next Generation airplanes. What should be kept in mind that not all of these announcements add to the backlog.
In total there were customer reveals for 57 orders valued $3.8 billion. These orders are already in the order book and, therefore, do not add value:
- China Airlines was revealed as the customer for 8 Boeing 787-9s.
- Avolon was revealed as the customer for 40 Boeing 737 MAX airplanes.
- Air Algerie was revealed as the customer for 9 Boeing 737 MAX 9s.
So, from the $24.8 billion, we should take out $3.8 billion and end up with $21 billion. Furthermore, there are options that only add value once firmed. These options for 70 airplanes are valued at $5.6 billion, covering 20 Boeing 787-9s and 50 Boeing 737 MAX airplanes that are part of the agreement with Air India. Similarly, the tentative order from Air Algerie for 2 Boeing 737-800 Boeing Converted Freighters only adds to the Boeing Global Services backlog once finalized.
If we only count the announcements that do add to the backlog, we are left with 230 orders valued $15.4 billion:
- Air India ordered 190 Boeing 737 MAX airplanes, 20 Boeing 787-9s and 10 Boeing 777-9s.
- Akasa Air ordered 4 Boeing 737 MAX airplanes.
- Luxair ordered 4 Boeing 737 MAX 7 airplanes.
- Air Lease Corporation ordered two Boeing 787-9s.
Overall, my view on the airshow for Boeing has been that it was not a particular exciting one. Wide body orders only accounted for 14% of the orders and a significant portion of the announcements covered customer reveals and options while the big Air India order was already highly anticipated and firmed up recently. Besides that, there was no view in the sales pipeline which we usually get in the form of tentative agreements being announced and the other orders were incremental orders. Normally, this stage is used to announce big business and Boeing only had one big deal to announce and that was it.
Boeing: The Backlog And Production Skyline
Aircraft type | Backlog | Increase | Relative increase |
Boeing 737 | 4,215 | 198 | 5% |
Boeing 787 | 594 | 22 | 4% |
Boeing 767 | 116 | 0 | 0% |
Boeing 777 | 73 | 0 | 0% |
Boeing 777X | 353 | 10 | 3% |
Total | 5,351 | 230 | 4% |
The evoX Aircraft Sales Monitor available to subscribers of The Aerospace Forum shows that Boeing has a backlog of 5,351 airplanes valued nearly $400 billion. The Paris Airshow announcements added around 4% to that, so while the order flow was underwhelming adding 4% to the backlog during a single event is definitely something. Likely not as big as some additions we saw in previous years, but it is not something to be ignored either. In terms of dollar value added to the backlog, we see roughly the same growth as on unit growth.
Both wide body programs for which Boeing received orders are in a forward-loss position meaning that under program accounting Boeing cannot report profits on those aircraft even though unit profits might exist. From cash margin perspective, the Boeing 787s should add around $640 million in free cash flow while any cash generation on the Boeing 777X remains in doubt. The Boeing 737 MAX orders should over time drive around $1.9 billion in program profits and generate around $2.3 billion in total cash flow on unit accounting basis. So, overall, the orders would secure around $3 billion in cash flow.
Aircraft type | Backlog | Implied monthly production rate |
Boeing 737 | 4,413 | 74 |
Boeing 787 | 616 | 10 |
Boeing 767 | 116 | 2 |
Boeing 777 | 73 | 1 |
Boeing 777X | 363 | 6 |
Total | 5,581 | 93 |
If we add the new orders to the backlog, we see that the implied production rate to deliver all airplanes within 5 years is 74 airplanes per month for the Boeing 737 compared to 70 before the airshow and a current production rate of 31 airplanes per month and plans to hike to 50 airplanes per month by mid-decade. So, we currently are looking at production rates well below demand and below order-to-delivery timelines of 5 years. That creates some pricing strength for Boeing and also explains Boeing’s decision to open a fourth production line for the Boeing 737 in Everett, which would push output for the single aisle jet to around 80 airplanes per month. The skyline to compile a production schedule at rates significantly higher than today’s seems to be there.
For the Boeing 787, a rate of 10 airplanes per month is required, and that fetches well with Boeing’s mid-decade plan to hit that rate with opportunities to increase production further in the South Carolina facility. For the Boeing 777 program, a rate of 7 per month seems to be required, though the order book for the Boeing 777X is shaky and order inflow is low due to the service-entry being delayed repeatedly. Boeing is aiming for a production rate of 4 airplanes by mid-decade.
For investors, the Paris Airshow itself had only one big announcement from Boeing which really is unlike most airshows prior to 2019. At times of high demand for airplanes certainly expectations were a bit higher. However, at the same time, we should also note that with an uncertain trajectory on production rate increases both in the single aisle segment and in the wide body segment as well as the production issues found on the Boeing 737 and Boeing 787 coupled with delays on the Boeing 777X certification selling airplanes becomes a bit more difficult even in a high-demand environment.
Conclusion: View The Bigger Picture For Boeing Stock
The Paris Airshow was far from impressive for Boeing. The announcements included customer reveals, which add no value, and the Air India order has been known for months. The confirmation is nice, but we haven’t seen big new business that we were not familiar with. There were 10 incremental orders besides the Air India order that add to the backlog and no peek into the sales pipeline. Combine that with high demand for airplanes and the Paris Airshow was somewhat underwhelming for Boeing.
However, the Boeing still did add new business, and we see the skyline strengthening, demanding higher production rates, which Boeing has also planned. For the Boeing 737 MAX, we see demand currently higher than Boeing’s production plans indicating there is more upside to production rates than what Boeing has announced so far granted that supply chain issues ease. Furthermore, on the Boeing 787 program we see that the backlog supports the planned production increase to 10 airplanes per month and while we have no insight in the sales pipeline due to absence of tentative agreements I do believe further upside to the production rate exists beyond 10 airplanes per month. During the Paris Airshow, Secretary of State Blinken visited China and there seems to be some agreement to stabilize relations with China which should bode well for the Boeing 737 MAX and Boeing 787. As we see MAX activity and returns grow weekly in China, the overall picture for The Boeing Company, despite a relatively “light” Paris Airshow, is improving.
For further details see:
Boeing Building The Skyline For The Future