Boeing (BA, Financial) announced an order win for 80 737 Max 8s on Wednesday. The order, valued at $8.8 billion, will help the aerospace behemoth near its annual order win target.
Investors are closely watching the net order inflow as it reflects Boeing’s future revenue generation and cash flows. The majority of the company’s revenue is recognized at the time of delivery of an aircraft. Here’s a closer look at the order book of Boeing and a comparison with year-to-date deliveries.
Order in details
Boeing bagged total orders for 80 737 Max 8s. Of this, Boeing received firm orders for 75 737 Max 8s from General Electric’s (GE, Financial) commercial aircraft leasing wing, GE Capital Aviation Services. It should be noted General Electric is a supplier of engines for the Boeing airplanes. The order from the company’s leasing wing is valued at $8.25 billion at list price.
This contract win takes the total 737 Max order count to 170 planes for GE Capital Aviation Services, which according to Boeing is higher than other leasing companies. The commercial aircraft financing and leasing wing of General Electric presently operates a fleet of 1,950 airplanes.
Boeing’s Commercial Airplanes Vice President Brad McMullen said, “We appreciate the confidence GECAS has in the 737 Max and look forward to seeing the airplanes placed with carriers all over the world.”
The remaining orders for five 737 Max 8 came from SmartWings, leading airline operating company in the Czech Republic. This order is worth $550 million at list price. Typically, aerospace majors give huge discounts on the list price to promote sales of large orders. Aircraft valuation firm Avitas says that a minimum discount of 54% is offered based on the market pricing data.
Boeing has bagged orders for more than 3,400 units for the 737 Max. The first 737 Max is slated to hit the world’s runways in the first half of this year. The current order win has bolstered Boeing’s order tally for 2016. The Chicago-headquartered aircraft manufacturer expects to deliver 745 to 750 aircraft for the year.
Order vs. delivery
Boeing clinched net orders for 536 jetliner sales last year. That compares with the company’s target delivery of 745 to 750 planes. The world’s largest plane maker delivered 681 planes through November. The book-bill ratio stands at 0.79, implying that so far Boeing has delivered more planes than received orders during the year. The aero major would ideally want the ratio to be around at least 1.
The overall demand for wide bodies has been sluggish recently, impacting Boeing’s order intake. The aircraft maker received orders for 17 747s, 26 767s and 17 777s through Dec. 20, 2016. In fact even the 787 Dreamliner failed to boost the order book. The composite-bodied aircraft racked up orders for only 70 units through Dec. 20.
Boeing’s current backlog is expected to keep its production lines busy for seven years. However, it should be noted that the majority of the orders are for its narrow-body 737 family. Orders for the more lucrative aircraft such as the 777 family are diminishing.
Boeing is expected to release its total order tally for 2016 Friday. Analysts believe it will be short of the company’s expectation of maintaining a book-bill ratio of 1. The American behemoth earlier guided to record sales of as many jets as it delivered during 2016. However, even after sealing the last two orders, Boeing is way behind its initial target.
Disclosure: I do not hold any position in the stocks mentioned in this article.
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