Aug. 1, 2023, © Leeham News: Air India is taking 55 Boeing 737 MAXes originally built for Chinese airlines and lessors, LNA has learned. These are part of the order announced in February for up to 150 MAXes. The order was finalized during the June Paris Air Show.
This deal accounts for the sharp reduction in inventoried MAXes reported last week during the Boeing 2Q2023 earnings call. It also represents another development in the see-saw saga of whether to remarket the 140 MAXes built for China.
First, Boeing was going to remarket around 140 737 MAXes ordered by Chinese airlines and lessors but which remained in inventory due to Beijing’s refusal to authorize delivery.
Then, a mere three months later, Boeing CEO David Calhoun—who announced the remarketing effort in the first place—said Boeing would pause remarketing the aircraft.
“Calhoun said the focus today is returning airplanes in China to service,” LNA wrote in reporting the January 25 earnings call for the year-end 2022 year. “There’s a reason to be optimistic about clearance to delivery from inventory, but Boeing won’t predict the resumption date. Boeing today is only “partially” remarketing the Chinese airplanes. ‘We’re on pause with that until we understand what China wants to do,’ he said.
Four sources told LNA that remarketing the MAXes ran into issues when Boeing Global Services couldn’t identify software and hardware interfacings that required changes from MAXes ordered by China but remarketed to other airlines. Boeing denied a connection, but new owners of the aircraft insisted this was the case.
Now, during last week’s 2Q2023 earnings call, about 39% of these Chinese airplanes were remarketed.
“We ended the quarter with approximately 220 MAX airplanes in inventory. This includes 85 for customers in China and 55 that have now been remarketed as part of the plan we have previously discussed, said CFO Brian West last week on the earnings call.”
That’s a remarkable decline: 55 airplanes since the end of the first quarter, ending March 31. Boeing then reported there were still about 140 MAXes out of 225 configured for Chinese airlines in inventory. There were about 200 MAXes in inventory on June 30.
Boeing’s corporate communication department offered no explanation for the dramatic drop in airplanes destined for China. A spokesman said Boeing had nothing to add to the earnings call announcement. The quarter-over-quarter inventory dropped a mere five airplanes.
New production aircraft can wind up being counted as inventory if not delivered by the end of the quarter. But Boeing previously said it hoped to deliver between 8-10 inventory airplanes per month in addition to new production aircraft. Production ostensibly is 31 per month, but supply chain issues have made this erratic.
Boeing’s second quarter 10Q filing with the Securities and Exchange Commission, Boeing said the 55 airplanes were “remarketed.” Indeed, according to one Wall Street analyst, this accounts for the unexpected surge in advance payments and cash flow.
Market intelligence, however, informed LNA that all 55 aircraft were taken up by Air India. They must be reconfigured to Air India specifications. Software for the cockpit systems must be reconfigured and software and other upgrades emanating from the 21 month grounding of the global MAX fleet must be completed.
Certification of the 737-7 and 737-10 is still on track for this year and next, respectively, Boeing said. First delivery of the 737-7 won’t happen until 2024, however. The first delivery of the MAX 10 is expected next year as well.
The glow is off the Paris Air Show. Reality is setting back in.
The mood at the air show was very upbeat. Commercial aviation and the airline industries are “back.” Large aircraft orders were placed before and during the air show. Eco-aviation, albeit overhyped, was the soup du jour. Optimism oozed out of every pore.
Now, the party mood is over.
True, aircraft are full, even on most international flights. More orders are expected as the airlines continue to recover.
But supply chain problems, a short but costly strike at Spirit Aerosystems (a key supplier to Boeing), a newly discovered problem with the Pratt & Whitney GTF engines and more are bringing the euphoria down to earth.
There is also a growing realization that many of the alternative energy concepts in eco-aviation are little more than pipe dreams that have little chance of success.