Delivery forecasts slashed
Boeing’s (BA) fast-selling and most profitable single-aisle 737 MAX planes have been grounded globally. Two of Boeing’s planes crashed in less than six months. Airline companies around the globe won’t take deliveries of the aircraft until the safety concerns are addressed.
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Several brokerage and research firms have lowered their 737 MAX shipment forecast for 2019. Jefferies cut its delivery projections for the model to 497 aircraft from 580 aircraft. Cowen expects Boeing to ship 500 737 MAX aircraft—down from 630 units.
On April 5, Boeing announced that it’s cutting its monthly production of 737 MAX series planes by 19% to 42 units from 52 units. The output cut means that the company will likely miss its 2019 delivery target of shipping 895–905 aircraft.
In 2018, Boeing shipped a record 806 jets—580 were 737 MAX series planes. The planes account for ~80% of the company’s total airplane orders and contribute one-third of its overall operating profit. Therefore, delayed deliveries would likely hurt the company’s revenues and cash flows. Boeing has over 4,600 backlog orders for its 737 MAX planes. In monetary terms, the backlog orders are valued at over $550 billion.
Boeing has received orders for its 737 MAX planes from every major airline operator (IYT) in the world. Among US air carriers, Southwest Airlines (LUV) placed an order for 280 aircraft. American Airlines (AAL) and United Airlines (UAL) have ordered 100 planes each.
Boeing has faced rating downgrades since the Ethiopia crash on March 10. Boeing stock saw its first “sell” rating in the last 20 months. Currently, among the 26 analysts covering Boeing, six recommended a “strong buy,” 12 recommended a “buy,” six recommended a “hold,” and two recommended a “strong sell.” The average target price on the stock has fallen to $426.57 from $443.75 on March 10.