Aerospace & Defense

Boeing Told to Cancel 355 Orders for 737 Max

Boeing Co. (NYSE: BA) reported Tuesday morning that it delivered a total of 20 new commercial jets in the second quarter of this year. For the year to date, Boeing has delivered 70 new airplanes. The grounding of the company’s best-selling 737 Max halted sales of the company’s most popular plane in March of last year.

Customers took delivery of just seven of the company’s 787 Dreamliners in the second quarter, compared with 36 deliveries in the year-ago quarter. Deliveries of the 777 fell from 10 to six, and 767 deliveries dropped from 14 to just four.

The decline in 777 and 787 deliveries is due largely to the COVID-19 pandemic that has all but stopped new deliveries from both Boeing and its chief rival, Airbus, as airline customers cancel or delay plans to upgrade their fleets.

For the first half of the year, Boeing has received a net 784 cancellations, including 353 for the 737 Max. Orders for 12 of the company’s 777 jets have also been canceled, as have four orders for the 747 jumbo jet. On the plus side, Boeing has written nine new orders for the 767 and 17 new orders for the 787.

More than half of the cancellations (439) are related to an accounting standard adopted in January 2018 known as ASC 606. The standard specifies criteria beyond a firm contract that must be met before a company can recognize revenue from its backlog.

Boeing has commenced flight testing its 737 Max jets following changes to the aircraft’s flight control systems and software but there remain weeks (at least) of testing and reviews and approvals before the U.S. grounding of the plane could be lifted. It is also likely that other national civil aviation authorities will want to conduct their own testing and reviews before lifting grounding orders.

While the COVID-19 outbreak has decimated near-term demand for any new Boeing (or Airbus) aircraft, Boeing needs to get the 737 Max back in the air as soon as possible. There may be no new orders for the plane for a while, but the company has more than 4,100 unfilled orders for the 737 Max.

Building and delivering the 737 Max will get Boeing’s cash flow running again. The company also has some 400 of the planes parked around the country awaiting delivery to customers. When the grounding order is lifted, Boeing can begin delivering those planes and getting paid for them.

Boeing stock traded up about 1.0% in the noon hour Tuesday, at $177.42 in a 52-week range of $89.00 to $391.00. The stock’s consensus 12-month price target is $177.80.