Pontifications: Boeing’s book:bill shortfall draws market ho-hum

By Scott Hamilton

Jan. 9, 2017, © Leeham Co.: Boeing’s falling a little short of a 1:1 book:bill last year was expected and drew a ho-hum from the market.

The stock was up fractionally for the rest of the day after Boeing announced the year-end data at 11 am Eastern time, closing at $159.10.

Airbus announces its full year orders and deliveries Wednesday in a press conference (Boeing only issued a press release).

Strong single-aisle sales

Boeing’s performance was on the strength of the single-aisle 737 line. Sales of the wide-bodies were low. The 777 Classic was an anemic 17 against a goal of 40-50. Sales of the 747-8 have been falling for years, and continued to do so. Orders for the 767 rely on FedEx and the USAF.

Orders for the 787 fell well short of being 1:1, ending the year with 58 net sales and a book:bill 0.42:1.

There hasn’t been a book:bill of more than one since 2013. Boeing’s 787 backlog ended the year at 700, equivalent to a five-year backlog. In reality, deliveries stretch beyond 2022 at a decreasing rate beginning in 2021.

New CEO looks ahead

Kevin McAllister, who was named CEO of Boeing Commercial Airplanes shortly before Thanksgiving, sent a message to employees looking ahead this year.

“We will focus on differentiating our value with our customers, delivering on our operational and financial commitments, and focusing on meeting our plan so we can continue to invest in new products, develop the team and build a strong One Boeing culture,” he wrote in a message also sent to media. “We’re also looking forward to the first 737 MAX 8 delivery, as well as the rollout and first flight of both the 737 MAX 9 and 787-10.”

McAllister’s message didn’t address an outlook for sales this year. This will come in the form of guidance when Boeing holds its year-end earnings call Jan. 25.

Analyst reaction

Buckingham Research, which has a Neutral (Hold) rating on Boeing stock, was the first analyst note issued Friday that we received.

We reiterate our NEUTRAL rating and $100 price target, implying 37% downside, after BA reported 4Q16 deliveries and full year orders. BA reported 4Q16 deliveries of 185 large commercial aircraft, slightly below our overall expectations for 186. Relative to our expectations, however, the mix was better, with more 777s than we thought, offset slightly by more margin-dilutive 787s. Boeing also reported full year orders of 668, implying a book-to-bill of 0.89x, which we maintain is below Boeing’s expectations for about 1.0x. We think investors were anticipating a book-to-bill below 1.0x given the lack of order flow throughout the year. To many investors, a book to bill <1x is traditionally the end of the cycle.

We note that 550 of the 4Q16 orders were narrow-bodies (82% of total) versus 656 last year (75% of total). Only 75 of the orders were for widebodies (11% of total) from 155 last year (18% of total).

26 Comments on “Pontifications: Boeing’s book:bill shortfall draws market ho-hum

  1. We deride the analysts on this forum but I think they have got it right for the present. the OEMs are in wait and see mode. It brings into stark relief existing problem programmes such as A380 and B77w but we could be at an inflection point or we could just be seeing an element of sanity coming into the ordering of aircraft. To think the book to bill of considerably more that 1 could continue ad infinitum was always a slightly ridiculous premise.

    My view is that the oil price will continue to edge north and we will see airlines on a replacement cycle that returns to normal after the backlog of orders are sated. This will mean waiting until 2019/20 for most or longer.

    • Without a doubt, I believe 2017 will be the year of the Airbus A380. As orders for widebodies slow, I believe that airlines have come to the realization that something New is needed – something Big: something like the Airbus A380. Consequently, I will not be surprised if the A380 racks up from 80-100 orders this year.

      And I believe that even the airlines who are traditionally buyers of smaller Airliners will opt to purchase the A380. I mean, it will sooner or later – and I believe sooner – become apparent to the likes of Southwest Airlines that flying a bunch of little planes lots of times in order to move a lot of passengers is stupid – and that aircraft like the Airbus A380 is the answer to their problem.(for they can move a whole lot of passengers at once with such a large aircraft!). I mean, one (1) Airbus A380 will carry what four (4) of their 737-700s carry now! Isn’t that just more convenient?! I think Airlines will figure it out, and then a new era will dawn.

      Or…maybe I should switch back to Decaf.

      • Any inflection point would be downside and not upside. I am a pessimist by nature, or as I prefer to see it a realist

        • Its Trumpian satire- when Yuuge is good
          Heres a youtube compliation
          /www.youtube.com/watch?v=EEA33bAXyNM

  2. I do ponder if I was right for the wrong reason?

    When oil prices were dropping th e wisdom was that would not affect sales and delivering.

    It obviously has, deferrals all over the place, not a tidal wave but certainly a ground swell. A few here, some more there. Emirate though is a pretty big one not in numbers but in the relevant aircraft size and monetary impact.

    Now I am hearing too much capacity. Isn’t that the same as the bubble I talked about?

    For the 787 the one off cancellation by Delta clear the books and gets that more real as that was never going to happen. Puts it in last year.

    And what Scott is saying needs to have attention. Its not your total orders, its when the Aircraft is SCHEUDLED for delivery .

    Ergo, 5 years booking is nice, but if 4 of those years are between 2020 and 2024, you have a problem between now and then.

    So its the yearly scheduled deliveries that count. You can feather that somewhat but a big gap means either a rate cut or you buck up and absorb the loss while you build and hold the aircraft.

    Some can be swapped for early, but not nearly as much in this market.

    That’s where accountants should be turned loose to calculate the plus and minus of that (an then put back in their room)

    I think rate 8 for the 787 is going to quietly be implemented. The days or rate 14 are gone.

    And they have two lines doing the same thing, a lot of excess capacity and production.

    Thank you MCnnearny, don’t read history (like DT) and know that the bubble will bust and you saddle the company with excess capacity that is not doing an ROI.

    So do you shift all 787 to Charleston? Use the space for the MOM?

    Sadly the result of excess is layoffs.

  3. What single aisle production will happen in the next few years? Rates of 600 or 700 per year seem outlandish at this point. Are A and B delivery schedules still booked to surpass 550 this year?

    • Yes.

      A lot of those orders are speculative, Air Asia, Lion, Norwegian all have huge back logs that are not sustainable.

      Lion I believe has its own leasing arm now.

      I don’t think you will see the rates go up and soon they will be going down as well.

  4. I am pondering how much of these orders was re-selling of deferred slots for next couple of years? Margin?? Slightly off subject Airbus will be thanking Boeing if QR’s 737 LOI is for 737-8MAXs to replace A320NEOs so U-Turn can turn them into A321s. Margin on A321s must be a whole lot better than A320s.

    Funny World.

    • U turn talks a good game but is this a case of playing for time. The A350s for Qatar seem to be crawling out of TLS compared to all other A350 deliveries and strangely they have stopped painting those deliveries after #14, so 4 aircraft are being built without being painted…. is Al looking to sell on a whole swathe of his commitment or is my conspiracy theory a step too far.

      • Since QR’s much talked about new business class suites still seems to be under development, perhaps they want to stretch out A350 deliveries in order not to have too many A350s outfitted with the “old” seats.

      • I dont think the manufacturers allow the on-selling of orders before delivery – except by them.

    • From a different perspective, I think that the QR ceo used the initial shortfalls of the A320 NEO to negotiate the swap for A321 NEO’s. (I’m unhappy with what happened, we’ll call the slate even if you give me A321 NEO’s for the price of A320 NEO’s)

      • I can’t help thinking that QR must be paying better for launch aircraft than other operators. Airbus have made him launch customer for a few aircraft now and you have to suspect that they wouldn’t put up with him is he didn’t give them best price for early build aircraft.

  5. It’s bizarre to see Boeing executives talk about building a One Boeing culture. The merger with McDonnell Douglas was 20 years ago. If the executives have not figured it out by now, they never will.

    • @Enzo: By “One Boeing” they mean Defense, Commercial and Services act as “one Boeing”, not separate business units.

      • Yep, the latest spin. If its good now, why not before?.

        Years back my boss got a new Chevy Suburban .

        2 months and the rear differential seal starting leaking seriously.

        He wanted me to fix it, I am, no, its under warranty and something is not right anyway, that’s unheard of. This could be a shaft issue and that gets real expensive and I don’t do differentials.

        He hated the dealer (rightfully so) and he decided to have a local shop do the work.

        They pulled it apart and then called him. Sorry, we were sure this serial rig would have had the old seal in it, not the new one. It has the new one and we can’t find it and Chevy is out, no aftermarket.

        They were good, it too them 2 weeks to track down that seal, nice to have someone on that sort of tracking full time, I never would have found it.

        So, why change the seal design that had worked perfectly forever. My take is that the engineer divisions needed to justify their existence and came up with all the spin about it being outdated yadi yadi that the world would end without a much better seal design.

        I think managers are all the same. If they aren’t shuffling things around they get nervous, who needs us?

        So, rather than work to make things that needed doing work and work better they shuffle things around and then justify themselves for long periods of time sorting the mess out.

  6. You’ve touched on a very interesting subject: “Lion Air”. As I recall, no one has been able to get any current financial statements out of this outfit in some time. Poor relations with their pilots led to some serious walkouts and flight disruptions in the past year or so. The Indonesian regulatory authorities (such as they are) were so fed up with how poorly run the airline was run, they suspended new Lion Air route approvals! (This was six months or so ago; they may have been lifted since). Both AB and BA may well wake up one day to some very nasty Lion Air surprises! P.S. Yikes! Googled recent Lion Air news. The Indonesian Transportation Ministry is apparently very ticked at both Citilink and Lion Air re: failures in enforcing SOPs on crew alcohol usage! (1/05/17 Jakharta Post). Never a good sign when your regulatory authority starts talking about you losing your operating authority if you don’t get in line with its regs.

    • I hadn’t followed them in that regard, good information .

      They and Air Asia are shaky in my opinion.

      Hundreds of orders that they can’t put to use and then lease out

      Air Asia is noted for kicking the order can down the run way for the latest improved model.

      Norwegian makes me nervous as well.

  7. Pingback: » Daily Aviation Brief – 10/01/2017

    • “And this gives you an idea what Boeing sold the 787-8 to people for in that time block.”

      Actually, that is not to bad considering that some earlier reports put those numbers somewhere in the high 70s to low 90s (John Ostrowers?)

      • First 400 frames _sold_ at an average of $87m _sans_ engines afair. That was in 2008?
        Assume some significant price escalation clauses coming into effect?

  8. Must say I am one of those who still thinks the time for the A380 is still to come.
    In the meantime, if an airline can buy a used A380 for the price of 2 or 3 new smaller wide bodies, then it is not so difficult to work out a business case.
    Lower crew costs and lower frequencies landing charges, navigation charges and a plan may be possible.
    Happy new year

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