Boeing 737 MAX Orders Rolling in as Airbus Order Drought Persists
by J. Kasper Oestergaard, European Correspondent.
Boeing and Airbus delivered 74 and 62 commercial jets in March 2017, respectively, compared to 71 and 57 during the same month last year. Year to date, Boeing has delivered 169 jets (176 by the same time last year), while Airbus has delivered 136 jets (125 in 2016). In 2016, Boeing delivered 748 jets (762 in 2015) in line with company expectations, while Airbus surpassed its delivery target of 650 jets by handing over 688 jets during 2016 (635 in 2015).
In March 2017, Boeing delivered 47 737s, one 747-8, one 767, 14 777s, and 11 787s. Boeing currently plans to raise its 737 production rate from 42 per month today to 47 in 2017 and 52 in 2018. Boeing’s CEO, Dennis Muilenburg, has stated that demand supports a further increase to 57 737s per month in 2019.
Airbus is ramping up deliveries of its A350 XWB and this, combined with a higher A320 production rate of 46 per month (commenced Q2 2016), means that the company is narrowing the gap in the deliveries race and will be likely to surpass Boeing in 2019. In March 2017, Airbus delivered 47 A320s, six A330s, seven A350s, and two A380s. During 2016, Airbus was dogged by problems with the supply of A350 interiors and Pratt & Whitney PW1100G turbofan engines for the A320neo. In March 2017, Airbus’ CEO Tom Enders said that he does not expect deliveries of A320neo jets to be significantly affected by recent problems with the Pratt and Whitney engines. Airbus expects to deliver 80 A350s in 2017 (67 to go) and more than 100 A350s in 2018, when the production rate is expected to hit 10 per month.
In the orders race, Boeing had a strong month and landed 144 gross orders (minus 4 cancellations => net of 140). Boeing’s March orders included two large 737 MAX orders: 41 aircraft for an unidentified customer and 30 for CDB Aviation. An additional 14 737 MAX jets were ordered in March, for a total of 85 aircraft. Boeing’s 737 NG Family of narrow-bodies is still selling well, having logged 26 orders in March (16 737-800 + 10 737-900ER). Another 21 737-800s were ordered for the U.S. Navy P-8 Poseidon Multi-Mission Maritime Aircraft (MMA) program. (Four of these will go to the Indian Navy.) Wide-body orders in March included much needed orders for eight 777-300ERs and one 747-8. Boeing has landed 140 net new orders this year to date, compared to 122 net new orders during the first three months of 2016.
After a miserable February, when Airbus did not land a single order and even received 10 cancellations, in March Airbus logged 14 net new orders (22 gross). Orders included eight A320ceos for Korean Air. Airbus has landed 6 net new orders so far this year (26 gross orders), compared to 11 net new orders in the same period last year.
Airbus’ order backlog as of March 31 stands at 6,744 jets (of which 5,547 or 82% are A320ceo/neo Family narrow-bodies). This puts Airbus ahead of Boeing, with a backlog of 5,744 (of which 4,506 or 78% are 737 NG/MAX narrow-body jets). The number of Airbus aircraft to be built and delivered represents a 10-year backlog at the 2016 production level. In comparison, Boeing’s backlog would “only” last 7.7 years.
Thanks to a surge in orders in December 2016, Airbus’ backlog set a new record, with 6,874 jets on order. However, after a very weak start in the orders race this year, that backlog has been reduced by 130 aircraft. Airbus booked 731 orders in 2016, resulting in a book-to-bill ratio of 1.06.
In contrast, despite a very strong order volume in December, Boeing’s backlog continues to hover slightly below the peak level of 5,813 jets on order at the end of January 2016. Boeing is now 69 jets off its record backlog. Boeing booked 668 net new orders in 2016 for a book-to-bill ratio of 0.89. The company booked 768 and 1,432 net new orders in 2015 and 2014, respectively. Airbus has retained an order lead over Boeing every year since 2012.
For the full year 2017, expect Airbus to easily surpass 700 deliveries and further narrow the gap in production between itself and Boeing. FI expects Airbus to deliver 710-720 jets during the year. The key for Airbus will be to successfully manage the continued ramp-up in production of the A320neo and A350.
In January 2017, Boeing set a target of 760-765 deliveries for the year. Based on previously announced production rates, that figure might appear conservative. However, Boeing’s cautious announcement, combined with a slow start to 2017, has led FI to update and reduce our forecast. We now project Boeing’s delivery number to come in between 765 and 775 aircraft. For Boeing, critical factors will be the planned increase in production of the 737 and a smooth transition to the MAX.
Both companies will probably see backlogs decline in 2017, with 400-500 net new orders received. In February, Airbus reported that it expects net new orders for the industry to decline by 30% in 2017. This is mainly due to slower GDP growth and low oil prices. According to both Airbus and Boeing, the demand for passenger aircraft is tied to growth in worldwide revenue passenger miles (RPMs), which are highly correlated with global GDP growth. While worldwide airline profits peaked in 2016, the International Air Transport Association (IATA) expects profits to fall in 2017 for the first time in six years due to higher oil prices and labor costs, combined with a slow-down in demand. World airline profits are expected to fall 16% to $29.8 billion in 2017.
A decline in orders should not be a major source of concern for jet makers. Backlogs are at or near all-time highs and will provide stability and growth for years to come. The main focus for both companies continues to be managing costs, especially with regard to their extensive global supply chains. According to Boeing, about 65% of the cost of a jet is from the supply chain. It is therefore no surprise that both Airbus and Boeing put immense pressure on their suppliers not only to deliver quality parts on time, but also to cut costs.
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