12 Jun

Boeing’s 737 MAX Crisis Hurts Its Commercial Aircraft Deliveries

WRITTEN BY Anirudha Bhagat

Aircraft deliveries plunged

The worldwide grounding of Boeing’s (BA) 737 MAX series planes has been hurting its commercial aircraft deliveries. In May, the company’s aircraft deliveries fell 56% YoY (year-over-year) to 30 planes from 68 planes in May 2018.

Boeing’s 737 MAX Crisis Hurts Its Commercial Aircraft Deliveries

The Chicago-based aircraft manufacturer had to stop deliveries of its 737 MAX series planes after regulators around the world grounded said planes following two deadly crashes in which 346 people lost their lives.

The 737 series accounts for ~80% of Boeing’s total commercial aircraft shipments and contributes nearly 30% to its overall operating profit. At the end of May 2019, Boeing had 4,550 unfilled orders for its MAX series planes.

Among major US air carriers, Southwest Airlines (LUV) has placed the highest number of orders for Boeing 737 MAX series jets at 280. Other US-based airline operators American Airlines (AAL) and United Airlines (UAL) have placed orders for 100 planes each.

Boeing is still building 737 MAX planes but at a lower rate, as it has to keep them parked for now. On March 29, the company announced that it would reduce its monthly production of said planes to 42 units from 52 units.

Impact on financial performance

Delivery cancellations are hurting Boeing’s revenue, cash flows, and earnings. The airplane manufacturer’s deliveries of 737 series jets fell to 89 units in the first quarter of 2019 from 132 units in the previous year’s quarter. Due to the massive decline in its shipments, the company reported YoY declines in revenue, operating income, and EPS of 2%, 21%, and 13%, respectively.

Since the Ethiopian Airlines crash on March 10, Boeing hasn’t delivered a single 737 MAX plane. Its number of net orders from January through May has been -125 units, as it’s had to remove the orders of India-based Jet Airways, which has run into financial trouble.

You can opt for the US Global Jets ETF (JETS) to gain exposure to the airline industry. The ETF has returned 6.2% so far this year, but it’s underperformed the Dow Jones and the S&P 500, which have gained 11.7% and 15.1%, respectively.

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