A Look At Boeing's Commercial Orders And Deliveries In July 2016

| About: The Boeing (BA)

Summary

Boeing booked 73 orders.

Boeing delivered 57 aircraft, 5 less than the monthly requirement to meet the annual delivery target.

Book-to-bill ratio currently is .77.

As part of the annual order and delivery battle between Boeing (NYSE: BA) and Airbus (OTCPK:EADSF/OTCPK:EADSY) I provide a monthly overview and analysis. The June report can be read here. In this article, I will have a look at the orders and deliveries in July.

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Orders

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Figure 1: Boeing orders up until July 2016 (Source: AeroAnalysis.net)

In June, Boeing booked 12 orders. July saw a significantly higher order inflow. Boeing received 73 orders, 6 wide body orders and 67 narrow body orders.

  • Malaysia Airlines ordered 25 Boeing 737 MAX aircraft with options for an additional 25
  • Air Lease Corporation (ALC) ordered 3 Boeing 737 MAX airframes
  • An earlier order from TUI for 10 Boeing 737 MAX aircraft that was disclosed at the Farnborough International Airshow in July was added to Boeing's order book
  • Ruili Airlines ordered 6 Boeing 787-9s. The order was announced during the Farnborough Airshow.
  • Mauritania Airlines ordered 1 Boeing 737-800
  • An unidentified customer ordered 10 MAX airframes and 5 Boeing 737-800s
  • A second unidentified customer added 2 MAX orders and 1 Boeing 737-800 to Boeing's order book
  • A third customer ordered 10 Boeing 737 MAX aircraft

At list prices the orders are valued $8.9B, but after discounts the market value is closer to $4.3B.

Compared to July 2015, order inflow fell by 28%. Last year Boeing received an order from FedEx (NYSE:FDX) for 46 freighter aircraft, accounting for almost half of the order inflow. During the first 7 months of 2016 Boeing received 383 orders versus 418 orders in the first 6 months of 2015, an 8% decline. I expect that some orders from this year's Farnborough Airshow will be finalized this year, but after a strong start Boeing started to trail year-over-year since June.

Deliveries

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Figure 2: Boeing deliveries (up until) July 2016 (Source: AeroAnalysis)

For 2016 Boeing guided slightly lower, reflecting lower production rate on the Boeing 747 program and the transition towards the Boeing 737MAX combined with a gap on the Boeing 737NG.

In July Boeing delivered 57 aircraft valued at $4.5B:

Deliveries decreased by 17 units, compared to last month but year-over-year delivery volume was more or less stable:

  • Split between narrow- and wide body deliveries was a 60:40 split A total of 2 freighter aircraft were delivered; 1 Boeing 747-8F for AirBridge Cargo and 1 Boeing 767-300F for FedEx
  • Lower deliveries are caused by lower delivery volume for the Boeing 737 (6), and 777 (3). This is partly compensated for by higher deliveries for the 747 (1), 767 (1) and 787 (2)
  • 14 Dreamliners were delivered, 11 of which were Boeing 787-9s. It can be concluded that the Boeing 787-9 will have the upper hand in the Dreamliner deliveries, which bodes well for Boeing as the aircraft has higher profit margins and brings in more cash.

Delivery volume was below the monthly average, but delivery volume tends to be lower during the month of July. In order to reach its delivery target Boeing will need 62 deliveries per month for the remaining months this year.

Book-to-bill ratio

Just like in 2015, Boeing is targeting a 1:1 book-to-bill ratio. In July Boeing booked 73 orders and delivered 57 air frames, resulting in a book-to-bill ratio of 1.3. Year-to-date the book-to-bill ratio (including cancellations) is .77. Despite orders inflow and deliveries picking up pace throughout the year, the road towards reaching its targets will be a long one for Boeing.

Customer spotlight

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In this month's customer spotlight, we have Mauritania Airlines International. The airline was established in December 2010 following the demise of Mauritania Airways. The airline has a total of 10 destinations, 9 of which are on the African continent.

The airline currently has a fleet of 4 aircraft: 2 Boeing 737-500s, 1 Boeing 737-700 and one Embraer (NYSE:ERJ) ERJ-145. The average fleet age is 15.3 years.

This month the airline ordered one Boeing 737-800, which could serve as replacement for the older airframes. At the moment there is very little reason for the airline to expand its fleet. Mauritania is one of the poorest countries in the world and the countries operates flights to are not well-off either. 20% of the country has less than $37.50 per month to live on. So an upturn in demand for flights to and from Mauritania is not to be expected. Additionally, the country's political system leaves to be desired.

Conclusion

Click to enlargeFigure 3: Wall Street Horizon -@WallStHorizon - Create your own custom event calendar today

The reported deliveries will have an impact on earnings that according to The Wall Street Horizon event calendar will be reported on the 19th of October before market-open.

Order inflow was naturally weak during the month of July. Boeing's book-to-bill ratio is .77, so there is some work to do for Boeing's marketing team.

In 2015, Boeing achieved its book-to-bill target at the very last moment. Despite lower anticipated deliveries in 2016, I expect Boeing to be facing a challenge to achieve its book-to-bill target. In April 2015, I published an article in which I stated that the order books of jet makers are not bubbles, but should decline at some point. In that article I shared my thoughts and expected order inflow to decline in a few years from now. With oil prices having declined ever since, chances are the order books will decline sooner than I expected at first. With Boeing just barely meeting its target last year, 2016 might be the year in which Boeing will not achieve its book-to-bill ratio.

Boeing is currently below its desired book-to-bill ratio and still has to sell almost 360 aircraft to reach its target. Given that orders tend to increase from Q3 and onwards it can be said that Boeing is not positioned extremely well, but it is not that bad either. The aspect of Boeing's order inflow that worries me more is the fact that airlines currently are not lining up for wide body aircraft. This has to do with low oil prices, which slow down the process of fleet renewal.

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Disclosure: I am/we are long BA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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