Boeing (BA, Financial) recently released the details of the orders and deliveries it made in 2016. The American aerospace behemoth delivered 748 airplanes during the year, which is ahead of its target of 745 jets. In the past few years, Boeing has reported strong deliveries and order inflow leading to a book-to-bill ratio of more than 1. However, the airplane manufacture couldn’t record as many sales as deliveries despite racking last-minute net orders for around 200 jets. Boeing finished 2016 with total net orders for 668 planes. That compares with 768 planes sold a year ago.
Orders in details
Boeing’s narrow body, the 737, continues to be the most popular plane. The company recorded orders for 550 737s during the period, accounting for more than 80% of the total net order inflow in 2016. The 787 Dreamliner was the second-highest selling airplane as it bagged net orders for 58 aircraft, or 9% of the total order. In addition, Boeing logged net orders for 26 767s, 17 airplanes each for 777 and 747. The total order is valued at $94.1 billion at catalogue price. The airplane manufacturer’s order backlog stood at 5,715 airplanes at the end of the year.
737: The bright spot
The 737 has been Boeing’s bread-and-butter aircraft program, driving its revenue and cash flow. The 737 has been the aircraft major’s most robust program, registering 550 net orders in 2016. This reiterates the fact that demand for single aisle planes is strong and its market is expected to grow, which requires capacity expansion. In addition, the replacement demand is also going to impact the narrow body order flow over the coming years.
Boeing bagged 210 or 38% of the total orders in the latter half of December 2016, and the majority of these were from undisclosed customers. The only major contract Boeing received in the concluding days of 2016 was from General Electric’s (GE, Financial) aircraft leasing wing, GECAS, which placed orders for 75 737 MAX 8s.
Boeing 737 Max is slated to enter service in 2017. The company currently has an unfilled order for 4,452 737 Max. This is equivalent to about nine years of production. Considering the scheduled production ramp up, the backlog is around seven years of production. For the company, the re-engineered plane is “the fastest-selling airplane in Boeing history.” During 2016, Boeing delivered 490 737s.
The 737 continues to sell well, despite the current slowdown in the order environment, particularly for wide-body aircraft. Boeing has plans to boost the production rate of its narrow body from 42 a month to 57 a month in the next three years. With the current backlog and order inflow of the 737s, investors should feel confident regarding the production ramp up. The production increase will up deliveries of the plane and boost cash flows. This will help in compensating the impact of the 777 program as it will be in its transition phase to the 777X and eroding cash flows.
Wide-body sales remain sluggish
As evident from the order activity over the last year, demand for wide-body planes has been sluggish in the past two years. The order inflow for aero majors is largely driven by their narrow body clan. For Boeing, the 777 and the 787 Dreamliner have been the most popular selling wide-bodies. However, orders inflow for long-haul planes have weakened. The drop in fuel prices and economic weakness across the globe are bearing an impact on the demand for wide-body planes. In addition, declining profits of airline operators have also reduced demand for long range planes.
Last word
Though deliveries remained flat in 2016, it is expected to bolster once the 737 Max enters service in 2017. The company’s wide-body portfolio deliveries were as per the expectations, but sales were disappointing. Boeing estimates the commercial airplanes market will need 39,620 airplanes in the next two decades, considering the growing passenger rate, a market of $5.9 trillion. It would be interesting to see how order flows for narrow-body and wide-body aircraft in the current year.
Disclosure: I do not own any position in the stocks discussed in this article.
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