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Boeing Falls behind Airbus in Aircraft Deliveries

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MAX woes proved a boon for Airbus

The ongoing trouble with 737 MAX series planes has been hurting Boeing’s (BA) overall commercial aircraft deliveries. On July 9, the company reported that it shipped 239 planes during the first half of 2019, down 37% from 379 units it delivered in the first half of 2018. The massive YoY decline is mainly due to frozen shipments of its fast-selling MAX planes. Deliveries for its MAX planes fell 58% YoY to 113 units from 269 units in the first half of 2018.

For the second quarter, the company’s overall shipments plunged 54% to 90 jets from 194 aircraft in the second quarter of 2018. Boeing saw an 82.5% fall in its MAX deliveries and reached 24 units during the quarter.

Boeing’s 737 MAX crisis has proven a boon for Airbus as the European planemaker has seen a significant rise in its aircraft deliveries. Airbus recently reported a 28% YoY jump in its first-half 2019 deliveries to 389 units.

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The numbers suggest that Boeing is likely to lose its world’s largest-plane maker title this year. Notably, Boeing has outpaced Airbus in commercial aircraft deliveries for the last eight years. However, the scenario is likely to change this year due to the massive decline in its shipments. Delay in getting safety approval for MAX jets could cause a further decline in overall commercial aircraft shipments.

The European airplane maker has remained well ahead of Boeing in the order race also. The company reported 88 net orders for the first half of 2019 while Boeing had a negative net order of 119 aircraft mainly due to 200 MAX order cancelations from India-based Jet Airways.

Boeing didn’t book any orders for its 737 MAX planes during the quarter. However, it announced a deal in June with International Airlines Group for 200 MAX jets worth $24 billion at list price.

Boeing’s MAX crisis

Air carriers around the world have denied taking deliveries of the said model planes following two deadly accidents within five months, where all 346 people on board lost their lives. The 737 MAX series accounts for nearly 80% of Boeing’s total airplane shipments and contributes about 30% to its overall operating profit. At the end of June 2019, Boeing had over 4,400 unfilled orders for its MAX series planes.

Among the major US airlines, Southwest Airlines (LUV) is the largest customer, which has agreed to buy 280 Boeing 737 MAX series jets. American Airlines (AAL) and United Airlines (UAL) have ordered 100 planes each.

Despite dried up deliveries, Boeing has continued the production of MAX series planes but at a lower rate due to parking issues. On April 5, the aircraft manufacturer announced it would reduce the monthly production rate of the troubled jets to 42 units from 52 units it builds in March.

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Financial impact

Frozen deliveries for MAX planes are hurting Boeing’s revenues, earnings, and cash flows. During the first quarter, the company’s 737 MAX deliveries fell 32.6% YoY to 89 units, which cause a YoY decrease in its revenues, EPS, and operating income of 2%, 13%, and 21%, respectively. Moreover, Boeing took charge of $1 billion during the first quarter due to MAX grounding and production rate cuts.

Bloomberg Intelligence analyst George Ferguson last month stated that Boeing could get a bill of $1.4 billion from airlines related to the loss of operating profit and canceled flights.

Analysts expect Boeing’s revenues to fall 18.6% YoY to $19.8 billion in the second quarter due to lower commercial aircraft deliveries. The operating profit is projected to plunge 67.9% YoY to $682 million, while the EPS will likely fall 47.3% YoY to $1.76.

The return of MAX planes to service is likely to be delayed further as the Federal Aviation Administration has found a new software glitch. Previously, it had been forecasted that airlines could get regulatory approval for flying by October. However, citing the latest issue with the plane, industry experts now believe that the troubled jets may not receive flying approval before the end of December.

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Further delay in receiving safety approval would negatively impact Boeing’s commercial aircraft deliveries. In the last few months, various research firms have lowered their 737 MAX shipment forecasts for 2019. Jefferies has cut its MAX delivery forecast by 83 units to 497 units. Cowen and Company now projects the company to deliver 500 MAX jets in 2019 instead of its earlier anticipation of 630 units.

In January, Boeing had forecasted commercial aircraft deliveries in the range of 895–905 units in 2019, representing a YoY increase of 12%–13%. Given a 58% YoY plunge in commercial aircraft deliveries in the first half of 2019, there is a minimal chance for Boeing to meet its targets.

Stock performance

Boeing stock has fallen significantly following the Ethiopian Airlines crash on March 10. Before the mishap, the stock was riding high on growing optimism over its rising orders and deliveries for commercial aircraft.

Until March 8, Boeing stock had gained ~31% in 2019 and was the top performer among the Dow Jones 30 stock component. However, following the March 10 Ethiopia air crash, the stock has eroded most of its YTD gain. Between March 10 and July 9, Boeing stock has plunged 16.4%, lowering its YTD gain to 9.5%.

Boeing has underperformed the Dow Jones, the S&P 500, and the NASDAQ, which have risen 14.8%, 18.9%, and 23.7%, respectively, YTD. The stock has also slipped to the 22nd place in the Dow 30 component list.

Except for Boeing, most aerospace and defense stocks have performed well in the year so far. Lockheed Martin (LMT), Northrop Grumman (NOC), and L3 Technologies (LLL) have gained 41.2%, 33%, and 41.2%, respectively, YTD. The iShares U.S. Aerospace & Defense ETF (ITA) has returned 23.5% YTD. The ETF invests in manufacturers, assemblers, and distributors of aerospace and defense equipment companies.

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