Boeing 737 MAX Orders Finally Start to Flow
Boeing's (NYSE:BA) top-selling jet has struggled mightily over the past two years. The aircraft manufacturing giant booked relatively few firm orders for the 737 MAX in 2019 and 2020 and lots of cancellations. This caused its order backlog to shrink dramatically.
So far, 2021 is shaping up to be a much better year for the 737 MAX, with order activity starting to resume. Still, the aircraft program has a long way to go to return to health.
A double-whammy for the 737 MAX
The grounding of the 737 MAX two years ago — following a pair of fatal accidents — discouraged airlines from placing new orders for the type. That caused the 737-family order backlog to fall from 4,708 units at the end of 2018 to 4,398 at the end of 2019.
Order activity might have recovered in 2020, due to high demand for narrow-body jets and long lead times at Airbus. But then, the COVID-19 pandemic struck, decimating air travel demand. Rather than being desperate to line up deliveries of new jets, airlines suddenly had more planes than they could use.
Image source: Boeing.
As a result, Boeing booked just 112 firm orders for the 737 MAX last year. Meanwhile, it suffered a slew of order cancellations. By the end of 2020, Boeing's 737 backlog had fallen to 3,282 units: down 30% from two years earlier.
Momentum is returning
The 737 MAX posted another month of negative net orders in January, causing the backlog to shrink again. However, there have been some signs of life since then.
In February, United Airlines added another 25 units to its 737 MAX order book. Boeing also recorded orders for 14 737 MAX jets from one or more unidentified customers. Even after factoring in order cancellations, Boeing closed the month with 12 net orders for the 737 family.
This week, Boeing announced that 777 Partners — an investment firm affiliated with several low-cost carriers — had ordered 24 737 MAX 8s, with purchase rights for 60 more. This deal is significant because 777 Partners is a new customer, whereas Boeing had been relying heavily on its top customers to jump-start 737 MAX order activity.
Additionally, Southwest Airlines (NYSE:LUV) is close to placing an order for dozens of 737 MAX 7s, according to Reuters.
Last fall, Southwest's management said that it would ly place an order in 2021 to replace its oldest 737-700s starting around 2025.
While the low-fare airline was considering the A220 in addition to the 737 MAX 7, Southwest executives have been clear about their preference to maintain a single fleet type for as long as possible. Thus, this potential order wouldn't come as a surprise.
Image source: Southwest Airlines.
That said, this was a “must-win” order for Boeing, so it will be encouraging to see the company seal the deal. And while Southwest will probably place fewer than 100 firm orders for the 737 MAX 7 this year, its eventual requirement for that fleet could be around 300 aircraft.
Will it continue?
The thaw in order activity in recent months is great news for Boeing. Still, between ly order cancellations and planned 737 MAX deliveries, Boeing would need quite a few additional orders beyond what is already in the pipeline to keep its backlog stable in 2021.
Boeing must continue winning over new customers and securing additional orders from airlines beyond the “usual suspects” such as Southwest, United, and Ryanair.
Firming up a 2019 commitment for 200 737 MAX jets by International Airlines Group — the parent of British Airways, Iberia, and several other European airlines — would be a great start.
However, it's not clear whether IAG intends to move ahead on that order.
In short, Boeing is finally making progress toward restoring the 737 MAX aircraft program to health — but it has a lot of work left to finish the job.
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Boeing Slashes 737 MAX Deliveries Targeted For 2021 By Over 200
Boeing has slashed its ambitious plans to deliver around 450 737 MAX aircraft within a year after grounding. The airline now only expects to deliver about half of that, or around 225 aircraft by the end of 2021, with the remaining deliveries in 2022.
Boeing has scrapped its plans to deliver all 450 parked 737 MAX jets in a year after ungrounding. Photo: Getty Images
Slashing Boeing 737 MAX deliveries
Boeing has about 450 737 MAX planes already built and in storage. In its second-quarter results, the aircraft manufacturer anticipated delivering all 450 of these aircraft in the first year after the ungrounding of the 737 MAX. While Boeing still anticipates an ungrounding order to come in the fourth quarter, it has slashed its 737 MAX delivery outlook in half for the next year.
Greg Smith, Executive Vice President of Enterprise Operations and Chief Financial Officer at Boeing, stated the following on the earning’s call:
“We currently have approximately 450 737 MAX aircraft built and stored in inventory. We expect to have to remarket some of these aircraft and potentially reconfigure them, which will extend the delivery timeframe.
We now expect delivery of about half of the aircraft currently in storage by the end of next year, and the majority of the remaining in the following year. Delivery from storage will continue to be our priority after assisting our customers with their return to service.
We expect the 737 MAX delivery timing, along with the production rate ramp up profile, to continue to be dynamic, as they will ultimately be dictated by the pace of the commercial market recovery, which has been slow and remains uncertain.”
Not all of Boeing 737 MAXs are parked in one place. Photo: Getty Images
Why Boeing is slashing its delivery outlook
Mr. Smith took a two-fold approach here. First, Boeing will need to work out what to do with some 737 MAX aircraft. Some customers, such as Jet Airways, no longer fly passengers and do not require the MAX jets built and parked.
For these planes, Boeing has been looking for homes for those jets, without necessarily a lot of public success. However, some carriers may have expressed interest privately while they await an ungrounding.
If Boeing does find new homes for some planes, that means those aircraft have to undergo an interior reconfiguration and exterior painting– both of which add time to the delivery process.
Jet Airways is one such 737 MAX customer that will not be taking the parked planes. Photo: Getty Images
The second thing on Boeing’s mind is the ongoing crisis.
The crisis has absolutely devastated the airline industry, though there are hopes that a slow and steady rebound is occurring that would give the industry some incentive to take new jets heading into 2021 and beyond. Mr.
Calhoun, CEO of Boeing, considers that there could be an uptick in 737 MAX sales, especially “white tail” planes, if a vaccine comes around and schedules continue to increase, and carriers see that they need more narrowbody aircraft.
A third condition, which Boeing briefly touched on, is China. Many 737 MAX aircraft currently built are expected to head over to Chinese airlines, but with China unsure about when it will recertify the 737 MAX, those deliveries could be delayed.
Targeting a fourth-quarter return to service
Underlining all of this is Boeing’s target for a fourth-quarter return to service for the 737 MAX.
Boeing is hopeful that regulators will be ready to sign off on the MAX, and the company can work with its customers to get the aircraft back into service.
The European Union and the Federal Aviation Administration are two regulators that have hinted that the MAX ungrounding is coming soon, with the former being a little more indicative of an impending ungrounding of the 737 MAX.
Boeing continues to manufacture the 737 MAX, though at a meager rate. Photo: Getty Images
Boeing has spent a lot of time working on a return to service for the plane. CEO Calhoun stated that the company had been rehearsing with regulators about the process of certifying each aircraft before delivery, and so delays in certifying each plane were not considered in slashing the delivery outlook for the MAX.
Most of the initial deliveries are expected for customers where Boeing already has a contract in place, for example, Southwest Airlines, American Airlines, Ryanair, and others. Aircraft that need modifications will come later.
Boeing has resumed production on the 737 MAX and expects to produce the aircraft at very low rates through the end of the year and expects to increase it to 31 aircraft by the beginning of 2022.
That production rate plan could be adjusted the 2021 delivery profile. In addition, the ultimate dictator will also be whether customers want to take new 737 MAX jets.
Do you think Boeing’s 200+ 737 MAX deliveries in a year is a reasonable timeline? Let us know in the comments!