Each year, Boeing (BA) and Airbus (OTCPK:EADSF) engage in a fierce order battle. In 2017, Airbus won that battle by numbers, but in terms of dollar value, which AeroAnalysis ultimately considers to be more important, Boeing easily outperformed Airbus.
Source: Wikimedia
For 2018, Boeing expects order inflow to be moderated. That's a pretty vague term, but it does not make it less interesting to look at orders and deliveries on a monthly basis to assess the overall appeal of aircraft on the commercial market. By looking at the orders, we can see a combination of willingness to commit, pricing, product, and availability coming together. Special attention will be paid to the mix of single-aisle aircraft and wide-body aircraft, knowing that a single-aisle aircraft costs roughly half or a third of a wide-body aircraft depending on the model.
In this article, AeroAnalysis will be having a look at the order inflow and deliveries for Boeing in March 2018. If you have missed the February edition, you can read it here.
As Boeing transitions to the ASC 606 revenue recognition standard effective Q1 2018, it has made available changes to its backlog. Currently, there are some aircraft for which Boeing has a firm purchase agreement with the customer, but it cannot be added to the backlog under the new system. What drives these eliminations is not known in more detail. Possibly, these are purchase agreements which might be pending cancellation, have high chances of being canceled, or are kept in place for purposes other than meeting contractual deliveries. Important to note is that it affects just 1% of the backlog.
Orders March
Figure 1: Orders Boeing March 2018
During the month of March, Boeing received a total of 197 orders valued $13.3B after discounts:
- 1 Boeing 737 MAX BBJ was sold.
- Jet Airways booked a long awaited order for 75 Boeing 737 MAX aircraft. Talks had been ongoing since mid-2017.
- An unidentified customer ordered 73 Boeing 737 MAX aircraft.
- SkyUp Airlines ordered 5 Boeing 737 MAX aircraft; 2 MAX 8s and 3 MAX 10s.
- Two unidentified customers ordered 2 and 4 Boeing 737 MAX aircraft, respectively.
- Boeing also received orders for its freighter aircraft as an unidentified customer ordered three Boeing 767-300Fs while Japanese ANA committed to purchasing two 777 freighters.
- An unidentified customer ordered 1 Boeing 787-8 aircraft
- Turkish Airlines ordered 25 Boeing 787-9s as expected.
- BOC Aviation ordered 6 Boeing 787-9, possibly a swap with an existing customer that canceled its order.
Boeing booked 80% of its orders for aircraft in the single aisle segment driven by 2 big purchases of 75 and 73 units, respectively. Boeing saw 8 cancellations. We expect that the two 737 MAX aircraft ordered are part of a swap from NG to MAX while 6 Dreamliners might have seen a customer swap.
March was a good month where Boeing booked 197 orders versus the 3 and 5-year average of 69 and 81 units. In the first 3 months, Boeing booked 255 orders versus 197 net orders last year. The difference between gross and net orders has not been accounted for as we do not have enough data to place cancellations in the correct months, but the numbers seem to be pointing at quite a good start for Boeing in terms of orders.
Deliveries in March
Figure 2: Deliveries Boeing March 2018
For 2018, Boeing has set a delivery target of 810-815 units. In December 2017, AeroAnalysis set a 2018 delivery target of 816 units at the low end. Boeing is more or less meeting our expectations here.
In March, Boeing delivered 91 aircraft, up 47 units from a month earlier:
- Boeing delivered 66 Boeing 737 aircraft, including 24 of the MAX variant and the first Boeing 737 MAX 9 delivery. Deliveries were significantly higher than the production rate offsetting a disappointing February month and naturally soft January delivery figure.
- Boeing 787 deliveries were above the production rate of 12 aircraft per month, partly compensating for the soft start of the year.
- Boeing 777 deliveries were 4-5 units lower than what should be expected based on the production rate of 3.5 aircraft per month effective 2018.
- The Boeing 767 and Boeing 747 deliveries are more or less driven by the delivery schedules of airlines during the year than by slot availability. Both types saw 1 delivery each.
During the month, SCAT Airlines became the newest operators of the Boeing 737 MAX, which has now been rolled out to 24 customers. The Boeing 737 MAX 9 and Boeing 787-10 both reached a major milestone with their first deliveries to Lion Air and Singapore Airlines (OTCPK:SINGY), respectively.
Jet makers tend to start the year softly as deliveries more or less peak toward year-end. In March, we saw Boeing offsetting a very weak start of the year. In fact, deliveries grew by 15 units. So, the rate increase in combination with a soft first quarter is reflected in the delivery numbers. For the next 9 months, Boeing needs 60-70 deliveries per month on average.
Book-to-bill ratio
For 2018, Boeing remained somewhat vague on the subject of the book-to-bill ratio, expecting “moderated” order inflow.
Obviously, shareholders are hoping to see Boeing having a book-to-bill ratio of 1 or higher for the full year, but AeroAnalysis currently is expecting it to be between .7 and .9.
Looking at the monthly book-to-bill ratios does not say a lot, but you have to start somewhere. In March, Boeing booked 197 gross orders while delivering 91 aircraft, indicating a 2.16 book-to-bill ratio. In terms of value, this ratio was 1.95. For the first three months of 2018, the gross book-to-bill is 1.39, so Boeing started the quarter off strong, or better said, Boeing ended the quarter on a strong note.
Conclusion
Earlier, we warned that if Boeing’s March figures would not offset low production volume in the first two months of the year, there was a high chance that Boeing might be missing consensus which is quite a bit higher than what Boeing has guided. At the same time, we remained positive during the February order and delivery report update, but did add the conditional risk of low deliveries and its impact on earnings in a separate report.
That risk now has been eliminated by strong deliveries in March, which we think should put Boeing in a much better position to book solid Q1 earnings. Additionally, we are also pleased with Boeing’s ability to shift a gear to improve the overall delivery figures for Q1, and we hope to see Boeing increasing production on its Boeing 737 program somewhere in mid-2018.
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Disclosure: I am/we are long BA, EADSF.
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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