Jet deliveries fell
Shipments of Boeing’s (BA) fast-selling 737 MAX jets have frozen since the Ethiopian Airlines crash on March 10, which has negatively impacted overall deliveries. The company registered a 56% YoY decline in its commercial airplane deliveries in May. The aircraft manufacturer shipped 30 planes last month compared with the total shipments of 68 jets it made in May 2018.
The 737 MAX planes account for ~70% of Boeing’s total commercial aircraft shipments and contribute nearly 30% to the company’s overall operating profit. As of May 31, the company had 4,550 unfilled orders for its MAX series planes.
Southwest Airlines (LUV) is the biggest customer for MAX series planes and has placed orders for 280 jets. US air carriers United Airlines (UAL) and American Airlines (AAL) have agreed to buy 100 planes each. Currently, the three US airlines together own 72 MAX aircraft.
Despite frozen deliveries, Boeing is still making MAX jets but at a slower rate. The company in late March announced lowering its monthly output of the planes to 42 units from 52 units.
Delivery cancellations of 737 MAX planes are hurting Boeing’s revenue, cash flows, and earnings. The company’s overall shipment of 737 series jets declined ~33% year-over-year to 89 units in the first quarter of 2019. As a result, the aircraft manufacturer reported YoY declines in revenue, operating income, and EPS of 2%, 21%, and 13%, respectively.
Bloomberg Intelligence analyst George Ferguson believes that Boeing “faces an estimated $1.4 billion bill for canceled flights and lost operating profit at airlines if the Max is still grounded by the end of September.”
To gain exposure in the airline industry, investors can opt for the U.S. Global Jets ETF (JETS), which has allocated its holdings across passenger and cargo air carrier, plane maker, and airport and terminal services companies. The ETF has returned 7.6% YTD but has underperformed the Dow Jones and the S&P 500, which are up 11.9% and 15.3%, respectively.