[ad_1]
On the surface Boeing (NYSE: BA) It might seem like you’re getting back on track after two difficult years. Last month, the Federal Aviation Administration finally recertified the Boeing 737 MAX for commercial service. That paved the way for Ryanair to order 75 737 MAX 200 more earlier this month. Last week, the 737 MAX achieved two additional milestones. On Tuesday, Boeing delivered a 737 MAX to United airlines, marking the first delivery of the type since March 2019. One day later, Brazil Goal became the first airline to operate the 737 MAX in commercial service in nearly 21 months.
However, poor operations and an unstable order book continue to plague Boeing. The aircraft maker recently reported another big drop in November deliveries. That was in stark contrast to Airbus (OTC: EADSY), which is quickly returning to normal.
Another terrible month for Boeing
Boeing delivered only 50 aircraft in the first quarter of 2020, as the 737 MAX’s grounding prevented it from participating in the higher-volume segment of the commercial aircraft market. The onset of the pandemic made things much worse. Boeing delivered just 20 commercial jets in the second quarter and 28 in the third quarter. By comparison, Boeing averaged more than 200 deliveries per quarter in 2018.
Image source: Boeing.
Many airlines have significantly reduced their cash spending in recent months. Additionally, there has been considerable progress toward widespread vaccine distribution in 2021. That should fuel a recovery in aircraft deliveries. Instead, Boeing delivered just 13 commercial jets in October. November was even worse. Total deliveries plummeted to just seven, six of which were freighters or military variants. Weak demand for wide-body aircraft partly explains this terrible performance. However, the company is also struggling with widespread quality control issues, particularly for its 787 Dreamliner plant in South Carolina.
Low total deliveries herald another quarter of high cash spending for Boeing (it burned more than $ 15 billion in the first three quarters of 2020). To add insult to injury, Boeing lost more than 30 additional 737 MAX orders last month as airlines and leasing companies continued to restructure their order books.
A completely different story at Airbus
Airbus also saw a sharp drop in aircraft deliveries earlier this year, delivering just 74 aircraft to customers in the second quarter. However, it benefits from its leading position in the single aisle market, where demand is expected to recover relatively quickly. As a result, Airbus commercial aircraft deliveries nearly doubled sequentially to 145 units in the third quarter.
Additionally, Airbus is on track to make the fourth quarter the best quarter of the year. It delivered 72 aircraft in October, including 55 narrow-body and 17 wide-body models. Last month, it delivered 64 aircraft, including 56 narrow and eight wide. All but one of the 136 aircraft that Airbus delivered in the first two months of the quarter were passenger aircraft.
Source image: Airbus.
If history is any guide, Airbus will deliver even more aircraft in December than in each of the past two months. Of course, deliveries keep going down year after year. However, Airbus has further reduced production, building roughly 50 to 55 aircraft per month. As a result, it is steadily reducing its inventory of undelivered aircraft, which stood at approximately 135 entering the fourth quarter. This will do wonders for Airbus’ cash flow. It also supports Airbus plans to boost the A320 Family production rate from 40 per month to 47 per month as early as next fall.
Night and day
While Airbus is rapidly tackling inventory that built up earlier this year, Boeing’s inventory continues to grow. Between the 737 MAX and the 787 alone, there are more than 500 undelivered aircraft parked in a variety of facilities. It will take at least two years to deliver all those planes, delaying Boeing’s efforts to repair its balance sheet.
The downside to Boeing’s order book has huge long-term implications beyond the immediate crisis. The wide-body market will not pick up anytime soon, and Airbus’s narrow-body order book is almost double that of Boeing. Based on the likely level of demand for aircraft over the next 10 years, there are not enough additional orders available to allow Boeing to sustainably return to 2018 production levels.
Boeing shares have rallied strongly since late October as the long-term prospects for the aviation industry have improved. However, considering the short-term and long-term challenges facing Boeing, investors looking to bet on an industry recovery might consider buying Airbus shares.
[ad_2]
