737 MAX Crisis Hurts Boeing Aircraft Deliveries



The ongoing troubles with its 737 MAX aircraft have continued to impact Boeing’s (BA) commercial aircraft deliveries.

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737 MAX fiasco hurt Boeing deliveries

Last month, Boeing shipped 18 commercial aircraft, down 72% from the 64 planes it delivered in August 2018. From January through August, the aircraft manufacturer delivered 276 commercial jets compared to 481 aircraft it shipped in the same period in 2018.

The massive year-over-year decline in its commercial aircraft deliveries is primarily due to frozen shipments for its MAX aircraft. Globally, airlines have stopped taking deliveries of MAX jets following two fatal accidents within five months. August marked the fourth straight month of frozen shipments of MAX aircraft.

The MAX aircraft series accounts for nearly 70% of Boeing’s overall commercial plane deliveries. Moreover, the 737 MAX generates approximately 30% of the company’s total operating profit.

In the US, Southwest Airlines (LUV) placed the largest order of 280 Boeing 737 MAX planes. American Airlines (AAL) and United Airlines (UAL) have signed an agreement to buy 100 each. So far, Southwest, American, and United have received 34, 24, and 14 737 MAX aircraft, respectively.

At the end of August, Boeing had 4,544 unfilled orders for the 737 MAX series aircraft. Despite the frozen deliveries, the company has continued producing MAX planes, but at a slower rate. In April, it reduced the monthly output of 737 MAX jets by 19% to 42 units.

Boeing falls behind Airbus

The ongoing trouble with the 737 MAX aircraft has been a boon for Airbus. The European aircraft manufacturer has delivered significantly more planes than Boeing in August and from January to August.

Last week, Airbus announced that it shipped 42 jets in August while its January–August shipments reached 499 units. In comparison, Boeing delivered 18 and 276 planes in August and the January–August period, respectively.

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The European aircraft manufacturer has also remained well ahead of Boeing in the order race. Airbus reported 16 net orders in August and 95 from January through August. In comparison, Boeing recorded six net orders for commercial jets in August. From January to August, Boeing has net orders of -85 aircraft, mainly due to the cancellation of an order for 200 MAX aircraft by India-based Jet Airways, which is now bankrupt.

Following the worldwide grounding of the 737 MAX aircraft, Boeing has not received a single order for the troubled jet. The company received a letter of intent from the International Airlines Group for 200 MAX planes during the June Paris Air Show. However, the International Airlines Group hasn’t placed a firm order for 737 MAX aircraft yet.

737 MAX grounding hurts Boeing’s financials

The massive decline in aircraft deliveries is negatively impacting Boeing’s financials. The company recorded a 54% YoY decline in commercial jet shipments during the second quarter. As a result, its Q2 revenues fell 35% YoY, and Boeing recorded a net loss for the first time in the previous 12 quarters.

The aircraft manufacturer recorded an after-tax charge of $4.9 billion during Q2 as an estimated compensation cost to its MAX customers. The after-tax charge reduced its Q2 revenues and pretax income by $5.6 billion. According to an August 20 Reuters report, the overall estimated cost associated with the 737 MAX fiasco has crossed $8 billion for Boeing.

Delays in getting safety approval for the 737 MAX aircraft could continue to impact Boeing’s overall commercial jet deliveries. Boeing expects to fix the software problem with its 737 MAX variant by the end of September and hopes to receive regulatory certification in October.

Boeing stock has returned 14.6% year-to-date, which is significantly lower than the 28.9% gains posted by the iShares U.S. Aerospace & Defense ETF (ITA). ITA has exposure to companies engaged in the distribution, assembly, and manufacturing of aerospace and defense equipment.


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