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Original Title: The Boeing 737 MAX Has Finally Been Approved For Use, But Can It Still Be Sold? Source: Zhitong Finance Network
Last Wednesday, the Federal Aviation Administration (FAA) formally reapproved the Boeing 737 MAX for commercial flights. Boeing’s best-selling model was grounded for more than 20 months, and once the airline has completed the necessary maintenance work and pilot training, it can resume flight. However, the circulation of the 737 MAX does not mean that Boeing will navigate smoothly. Now, it faces a tougher task: selling the 737 MAX in an unprecedented recession in the aviation industry.
The Boeing 737 MAX has finally been approved to fly again, but can it still be sold?
Reservation
As of October 31, Boeing reported there were 3,365 undelivered orders for the 737 MAX. Although this is below the peak of more than 4,700 orders two years ago, there is still a considerable backlog of orders. After all, 737MAX deliveries peaked in 2018, with an annual delivery volume of 580. Boeing’s current order book for the 737 MAX equates to 6 years of production at this rate. Therefore, many bulls believe that Boeing’s business will return to normal in a few years.
However, the reality is more complicated. Boeing’s 737 MAX’s biggest customers include Asian low-cost carriers Dubai Airlines, Lion Air, and VietJet Air, all of which have ordered too many planes under unrealistic growth plans. For example, Dubai Airways currently has around 50 aircraft, but still has an order for 237 737MAX aircraft. Obviously, before the late 1920s and early 1930s, Dubai Airlines will not be able to carry the majority of the 237 aircraft ordered.
Another 700 orders came from aircraft leasing companies. Currently, the leasing company does not have enough customers to process these orders, and these companies will not accept delivery of the aircraft until they receive the order. At the same time, considering that global air travel demand won’t fully recover until at least 2023 or 2024, even relatively stable airlines are trying to delay orders for several years.
According to data released by Boeing, orders for 12 Boeing 737 MAXs were canceled in October, there were no new orders that month, and only 13 aircraft were delivered to customers. So far this year, due to the adoption of stricter accounting standards, the maximum number of orders canceled or withdrawn from the official portfolio has risen to 1,043.
Ultimately, although the Boeing 737 order book is equivalent to almost 6 years of production at full production speed, these orders are not secured. Some of them can be delivered in 6 years. However, some orders may eventually be canceled.
Boeing’s current goal is to deliver more than 450 complete 737 MAXs to its inventory within the next two to three years, while increasing production to 31 per month by early 2022. So, the company expects to continue increasing production to previous levels. in the next years. To achieve these goals, Boeing needs to accelerate sales of the 737 MAX.
Accelerate sales
Boeing’s first priority should be to sell approximately 100 “whitetail” 737 MAXs in inventory. The original purchaser of these aircraft canceled the order and they were to be resold.
Boeing is likely to receive enough orders from America’s top five airlines to empty its inventory by the end of 2022, but this can come at the cost of delaying or canceling other existing orders. Also, buyers can request substantial discounts because they won’t actually need additional planes for the next two years.
Going forward, Boeing must convince existing 737 MAX customers to expand their orders, and at the same time convince some Airbus A320neo customers to diversify their aircraft fleet. There are good prospects for development here. Alaska Airlines recently hinted that it might soon place a large order for 737max to replace its Airbus jet. IAG (the parent company of several European airlines, including British Airways and Iberia) signed a letter of intent to buy 200 737 MAX jets last year. If the deal is finally finalized, it will also be a big step for Boeing in the direction of recovery.
Big challenge
However, when Boeing tries to expand its 737 MAX orders, it will face two major challenges. First, Airbus has a backlog of 6,517 narrow-body passenger aircraft orders. This will make it difficult for Boeing to gain Airbus customers, because many airlines already have enough narrow-body aircraft to meet their needs for the foreseeable future.
Second, so far, more than 40 airlines have closed and nearly 500 planes have been idle. Many more airlines are facing difficulties, such as the European low-cost carrier Norwegian Airways, which recently went bankrupt in Ireland. Other companies have been downsized through bankruptcy proceedings. Therefore, there will be a lot of second-hand aircraft with relatively low prices on the market. This will complicate Boeing’s efforts to persuade capital-strapped airlines to order new planes. Similarly, aircraft leasing companies have thousands of aircraft on order or about to expire, and they need to deliver most of their existing aircraft to customers before ordering additional aircraft.
Bad prospects
Boeing faces a long road to recovery. Depending on the future growth rate of the aviation industry and the rate at which Airbus increases production, Boeing 737 production may never return to its highest level in 2018. This may cause the share price to Boeing will continue to underperform for years to come.
