Boeing Cancellations Outnumber New Orders
The market for new aircraft is quickly changing as the future travel demand figures are being readjusted. Although it is very present that the most immediate future of travel plans have certainly been affected, many airlines are looking for the future as they plan how many aircraft will be needed for the years to come ahead.
Boeing (BA) is one of the worlds largest producers of commercial and military aircraft for airlines and governments around the world. For the last months records they have had their Backlog shrink to the lowest it has ever been at just 4,744 future orders.
The request for more cargo aircraft have been placed by Freight company UPS. Requesting for a total of nine new 747 freighter aircraft. As nine new orders came in, 18 of its orders were cancelled. Resulting in one of the first times in years that the speed at which orders are being cancelled is greater than orders being placed for aircraft.
In a recent report provided by the International Air Transport Association (IATA), they are anticipating that the airline industry world wide will likely lose $110 Billion between the years 2020 and 2021. These predication are also based on models that anticipated the projected growth from the levels of travel that were seen near the end of 2019.
The market has had trouble digesting the movement and sudden shock that has come to the airline industry. Boeing has certainly been under intense fire as their company has been affected by the grounding of the 737-MAX in 2019 and then after making a smooth recovery being then hit by COVID-19. It appears that as the news of Coronavirus as spread through the market that many investors have forgotten of the grounding of the 737-MAX as their stock value has jumped up significantly following the weeks after the Coronavirus outbreak.
With reports predicting that April was the slowest months for travel we are starting to see a slow uptick in travel start to begin again as the months are nearing into the summer time. With commercial airline routes dwindling the demand for cargo aircraft continues to rise. With FedEx (FDX) ordering an additional Boeing 767, as well as 5 additional 767’s and two 777’s by unidentified customers.
The aircraft with the most cancellations is the 737 MAX with 14 orders taken off the order books. Adding to the total 108 orders that were lost the most before. Between January to May over 600 aircraft have been cancelled which is record to be the largest change in demand in decades of travel.
Aircraft Selection
Boeing 737
Currently with over 4,000 Aircraft in the backlog it is the most sold aircraft in the fleet. Over 10,000 737 have been produced since the first creation of the model. The 737 MAX is 8% more efficient to operate than most aircraft in its similar size. Currently 0 models are being produced as the facilities have been put on hold until FAA approval.
Boeing 747
Currently only 13 Aircraft are on the books for future deliveries. 1 of the Boeing 747-8 will be the next U.S. Presidential Aircraft. Currently taking over 2 month to produce one aircraft at the current production rates.
Boeing 767
FedEx has recently announced that they will be transitioning parts of their fleet to using the Boeing 767. Potential market of 400 Boeing 767 Tanker conversion is a market worth over $80 billion. With 86 total aircraft placed for future orders and a production rate of three new aircraft a month, this model continues to thrive.
Boeing 777
Between the Boeing 777 and the 777X they have served over 75 unique customers. Being extremely popular to many individuals and being in service for more than 10 years, the Boeing 777 continues to remain reliable and profitable for its operators. Currently producing about 5 a month, the company has plans to reduce production rates down to 3 a month starting in 2021.
Boeing 787
One of the more modern additions to the fleet, the Boeing 787 received over 1,500 orders on the launch. With currently still over 515 orders left to go and a production rate of 14 new aircraft a month the Boeing 787 is a modern marvel that is the fastest twin aisle in history to fly over one million passenger flights.
Technical Analysis
Boeing (BA) has been been providing investors with year over year returns consecutively for decades before. We had a rough year in 2019 as the market was struggling to take value away from Boeing. Regardless of the news surrounding the issues that Boeing was facing the company still remained strong in terms of its value.
After our major downturn from the COVID-19 outbreak we had a pop rally. The value of the stock jumped up nearly over 100% from the low of $113 to the current range of over $216. Meeting some range of resistance we are seeing price start to reject the price level slightly. Still not sure of if price will completely reject the price level or break above will be dependent on some outside factors with Federal Reserves updates on the market conditions.
With the market taking into consideration the decreased quantity of new orders many may potentially be looking to reduce some exposure to Boeing. Regardless of the 18 orders that were cancelled, they still have thousands of orders still pending.
As well it is important to look at the other vendors and service companies that could potentially be interested in purchasing new aircraft. Aircraft leasing companies for example are entities which purchase aircraft through their network of investors. These aircraft that are purchased are then leased out to airlines and operators for monthly payment. This option can often be more appealing to companies that do not have the capitol means to be able to purchase new aircraft.
Leased aircraft have the potential of taking a large percentage of the market in the years to come as it provides operators an ability to continue to operate while reducing their principal expense. This will allow them to hold more cash on hand and maintain their ability to keep operations running smoothly.
Boeing continues to trade as one of the most liquid assets in the aviation industry. With millions of interested investors every day there is incredible volume that supports the movement of (BA). It is important for investors to keep risk exposure very tight when trading fast moving assets like Boeing (BA). Considering that their high volume and stock value can result in rapid movements of price its important to properly conduct analysis and not rush any entry point in efforts to try and chase profits.
What are your thoughts on Boeing (BA)? Is the stock still under priced and a great buy at the current price? Is our rally going to be short lived followed by sellers paradise? What kind of strategies are you going to use to protect your capitol from a potential reversal?
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