How does Boeing look on Orders and Deliveries for the First Quarter in 2016? The table below allows us to compare and contrast this year with last.
- Orders – 2016 saw orders up nearly 20%. But that was driven primarily by the 737-700 order at United. That deal was done at pricing that was well under market as this was a defensive play to thwart Bombardier gaining a foothold with its CSeries. The industry rumor mill indicates pricing in the low to mid $20s for those aircraft; a massive discount. The 777-300ER orders for 2016 are good, but this product is also trading at a deep discount, as Boeing tries to avoid another production rate reduction for the 777 line until the 777X is introduced four years from now. While orders are up, margins may be neutral give the aircraft mix. 787 orders are down substantially year over year, but this is only one quarter and the snapshot is unlikely to reflect performance for the full year. Overall, Boeing continues to have orders, but their average margin appears to be weakening given the product mix.
- Deliveries – The 737NG remains crucial to Boeing’s cash flow and the -800 is the model customers want most. The -900 has been weak and is likely to remain that way with the MAX9, which does not compare well against the A321neo, which is outselling it by a 5:1 margin. The freighter market is soft, and that softness is reflected in both the small numbers of orders and deliveries. The good news is that Boeing owns the freighter market, and is likely to continue to do so. Deliveries of the 777-300ER remain solid and Boeing is managing to keep the line busy at its lower production rate as it starts to transition to the 777X. The current 777 line should stays busy through the rest of this year and next, but gaps remain in the skyline for 2018-2019. The best news is the 787 lines are churning out aircraft. These are high value products that customers want as soon as they can get them. But the massive cost overruns with the 787 program are such that it will be years until that product line can break-even. But the cash flow has turned from negative to positive, even though Boeing appears to still be losing money on every airplane that it makes from an accounting standpoint.
The Bottom Line:
Boeing’s first quarter orders look solid, but competitive pressure has narrowed margins when these airplanes will be delivered in the future. Deliveries are slightly down from last year in total, but strong for 737-800, 777-300ER, and 787-9, which should help keep 2016 margins up. All in all, a decent quarter for Boeing as the record order levels of 2013 and 2014 have flattened into book to build ratios back under one in the last two years.
