Boeing: Big Orders In December (NYSE:BA)

Interesting times for Boeing (NYSE:BA) investors. The stock significantly gained value in the final quarter of last year, but times remain challenging and that has led some analysts including Seeking Alpha and Wall Street analysts to be somewhat cautious issuing hold or even sell ratings. It’s obviously extremely good for readers to have access to have fresh perspectives, but having covered Boeing in detail I find it somewhat interesting that while metrics are improving analysts are now reaching back to risks that I described years ago when some analysts were still cheering for a quick recovery and it makes me wonder how forward looking the analyses and theses really are, because while Boeing’s stock has been down in 2022 and metrics improved significantly, many analysts are now focused on building sell and hold theses that solely focus on the recent upward price movement.

Either way, I continue to build my forward looking analysis and analyzing monthly orders and delivery numbers in detail is one element of that and I will use this report for analysis of the December numbers. With the release of the December numbers, we can also conclude the 2022 year for Boeing. In a separate report, I will analyze the full year numbers for Boeing and Airbus.

Boeing Orders and Deliveries Surge

The interactive evoX orders and deliveries infographic shows that Boeing booked 250 orders valued $22.5 billion consisting of 149 single-aisle jets and 101 wide-body aircraft, marking a sequential increase of 128 orders:

• Avolon Aerospace Leasing Limit ordered five Boeing 737 MAX aircraft and two Boeing 787-9s.
• BOC Aviation Limited ordered 40 Boeing 737 MAX aircraft.
• El Al Israel airlines ordered one Boeing 787-9.
• Hawaiian Airlines (HA) ordered two Boeing 787-9s.
• Pembroke Capital Limited ordered five Boeing 737 MAX aircraft.
• An unidentified customer ordered nine Boeing 737 MAX aircraft.
• An unidentified customer ordered five Boeing 787-9s.
• An unidentified customer ordered one Boeing 787-10.
• United Airlines (UAL) ordered 90 Boeing 737 MAX aircraft and 90 Boeing 787-9s.

During the month, the following changes were made to the order book:

• Akasa Air cancelled orders for 10 Boeing 737 MAX aircraft.
• BOC Aviation cancelled orders for eight Boeing 737 MAX aircraft.
• Donghai Airlines cancelled orders for 13 Boeing 737 MAX aircraft.
• Goshawk Aviation cancelled orders for 10 Boeing 737 MAX aircraft.
• SMBC Aviation Capital cancelled orders for four Boeing 737 MAX aircraft.
• Air Lease Corporation cancelled orders for one Boeing 787-9 and one Boeing 787-10.
• An order for two Boeing 787-8s was transferred from Boeing Capital Corporation to American Airlines (AAL).
• CES Leasing Corporation was identified as the customer for one Boeing 777F.
• China Southern Airlines was identified as the customer for one Boeing 777F.
• BBAM Aircraft management was identified as the customer for one Boeing 737 MAX.
• Southwest Airlines was identified as the customer for three Boeing 737 MAX aircraft.
• United Airlines was identified as the customer for 10 Boeing 737 MAX aircraft and 10 Boeing 787-9s.
• El Al Israel Airlines was identified as the customer for one Boeing 787-8.

December was quite an interesting month. Obviously the big order from United Airlines ended up in the Boeing books. There are, however, two things that I find somewhat unfortunate. The first is that while United Airlines has flexibility to choose between the Boeing 787-8, Boeing 787-9 and Boeing 787-10 for its delivery mix and while it’s also clear that a mix of all variants makes most sense for its replacement needs, an order for Boeing 787-9s was logged and it’s unlikely that this reflects what the company will actually be taking delivery of. Furthermore, United Airlines and Boeing both made it sound like there would be 200 new orders with options for 100 more, 10 Boeing 787s and 10 Boeing 737 MAX aircraft were already in the order books and have been revealed in December. So, in essence this was an order for 180 aircraft and not 200 aircraft, and given that aircraft cost $50 million to $200 million I believe that Boeing and United Airlines both did not do their part properly informing stakeholders. Also interesting was that Donghai Airlines cancelled orders for the Boeing 737 MAX, and if memory serves me well that is the first significant Chinese airline cancellations which potentially also clears the path for remarketing the jets efficiently. Furthermore, we saw the order mix having the usual 60-40 split that I’m looking for and Akasa Air is continuing its cancellation spree as it takes delivery of aircraft from lessors rather than consuming its placed order book with Boeing.

In December, Boeing logged 250 gross valued $22.5 billion with 47 cancellations resulting in 203 net orders valued $19.9 billion. A year ago, the U.S. jet maker booked 80 orders and one cancellation, bringing its net orders to 79 units with a net order value of $5.2 billion. So, we see that net order inflow increased significantly helped by the big order from United Airlines.

For 2022, Boeing booked 935 gross orders and 161 cancellations, bringing the net orders to 774 units with a net order value of $61.3 billion. In 2021, Boeing booked 909 gross orders and 479 net orders with a net value of $34.7 billion. So, gross are slightly higher compared to last year, but the net order orders and net order value are significantly higher.

Boeing also updated its ASC606 adjustments tally, which is a tally in which Boeing lumps orders that have a purchase agreement but also several other check boxes that need to be ticked in order to count the aircraft orders to the backlog or not. During the month, we saw the tally decrease as 25 737 MAX aircraft and four Boeing 787s were removed from the tally.

If all ASC 606 adjustments result in cancellations, which definitely is not the case, Boeing would have to scratch an additional 852 aircraft from its books, but as credit ratings for airlines improves and financing is arranged the number of aircraft accounted for in the ASC 606 tally might come down without the order being cancelled.

Boeing Deliveries Reach Year High

In October, Boeing delivered 35 jets compared to 51 in the previous month. The jet maker delivered 37 single-aisle jets and 14 wide-body aircraft with a combined value of $3.9 billion:

• A total of 54 Boeing 737s delivered, consisting of one Boeing P-8A and 53 Boeing 737 MAX aircraft.
• Boeing delivered two Boeing 767-300Fs.
• Boeing delivered three Boeing 777Fs.
• Boeing delivered no Boeing 747-8F and delivery of the final freighter is scheduled for January.
• Boeing delivered 10 Boeing 787s; two -8s, three -9s and five -10s.

The delivery flow looked strong in December and reached a new high for the year, but while I’m pleased with the Boeing 737 MAX and Boeing 787 delivery volumes it remains to be seen how much of that delivery momentum can be carried over to 2023 and how much was actually related to the usual quarter-end and year-end delivery push. Overall the delivery numbers do indicate a very appreciable burn off in inventory, which is a key watch item for Boeing’s balance sheet health to improve toward more normalized levels including lower inventory on the balance sheet.

Compared to last year, deliveries increased by 31 units while the delivery value increased by $2.5 billion, reflecting higher volume and a more appreciable delivery mix. In 2022, Boeing delivered 480 aircraft valued at $33.8 billion compared to 340 aircraft valued at $25.2 billion last year. So, we see that Boeing ended the year below its initial target of 500 units but it’s not a huge miss overall and the company was quite early with admitting that it would not make the unofficial target.

The book-to-bill ratio for the month was 3.6 on unit basis and 4.5 on dollar value basis. For 2022, the gross book-to-bill is 1.9 in terms of units and 2.1 in terms of value, while the cancellation rate is 17.2% and 3.2% when measured against the backlog. The book-to-bill ratio for the year is looking extremely strong. This is driven by strong order inflow, but also by the underwhelming delivery numbers due to supply chain issues. So, book-to-bill ratios higher than one do show balance or oversold positions in general, but in this case, they also reflect the big challenges when it comes to hiking production.

Conclusion: Boeing Delivers, So Does Its Stock But Stability Still An Issue

For December, a strong end of the year was expected and Boeing delivered just that with strong order inflow including an order for 180 aircraft from United Airlines and 40 aircraft for BOC Aviation. I would say in terms of orders there were no major surprises.

For quite some time Boeing has been delivering aircraft but not yet at the rate that was satisfying. I was looking for delivery rates of 40 to 45 Boeing 737 MAX aircraft per month and Boeing missed those expectations most if not all of the months except for December. So, December was a strong month and if that is a precursor of what can be expected in 2023 than 2023 should be an extremely strong year though I should point out that seasonally the December numbers are higher than average. Either way, I do believe that Boeing had a good month and also a good year or at least its Commercial Airplanes segment has and I am expecting further improvement in 2023.

Shares of Boeing have significantly outperformed the market recently and I believe that as stronger cash flows become better visible there’s opportunity for Boeing to deleverage and become more attractive for investment.