Last year, aircraft orders lagged deliveries at Boeing (NYSE:BA) for the first time since 2009. With the company planning to ramp up production in the coming years, this lack of order flow is somewhat concerning.
The slowdown in the aerospace market that began in 2015 has continued in the first half of 2017. Boeing has fared somewhat better than top rival Airbus (NASDAQOTH:EADSY) this year, with more than twice as many orders year-to-date. That said, with 208 net orders as of the end of May, Boeing is on pace to have fewer orders than deliveries again during 2017.
Next week's Paris Air Show represents a great opportunity for Boeing to demonstrate some order momentum. Let's take a look at some key market segments where it's particularly important for Boeing to show progress.
Launching a new narrowbody model
Like Airbus, Boeing is swimming in orders for narrowbody planes. The Boeing 737 family doesn't have quite as long a backlog as the Airbus A320 family, but its more than 4,400 unfilled orders are enough to support about seven years of production.
That said, Boeing has been losing badly to Airbus at the upper end of the narrowbody market. Its 737 MAX 9 has been outsold by the Airbus A321neo by a roughly 3:1 margin. Airline interest in this size class is increasing steadily, so it has been clear for years that Boeing needs to respond.
Boeing is expected to officially launch a new, larger version of the 737 next week, called the 737 MAX 10. The MAX 10 will be slightly smaller than the A321neo and should be roughly comparable to it in terms of range and unit costs.
It will be important for Boeing to back up the 737 MAX 10 launch with some big orders. Fast-growing Ryanair is reportedly interested in Boeing's new 737 variant. U.S. airline giant United Continental could also be ready to commit to a firm order for the MAX 10. Several budget carriers in Asia are also likely targets.
Locking in a lot of 737 MAX 10 orders is important for Boeing because aircraft leasing firms tend to be wary of buying models that lack a large, diversified customer base. And without aircraft leasing firms on board, Airbus would continue to enjoy a huge advantage over Boeing in the large narrowbody market.
Boeing keeps looking for widebody orders
In the widebody market, Boeing has an even greater need for new orders. The company has already had to reduce production of its 777 family, with a second production cut scheduled to go into effect later this year. Meanwhile, Boeing will have to drop its plan to boost 787 production from 12/month to 14/month unless it gets a lot more orders by year-end.
As of the end of May, Boeing had brought in just nine net firm orders for the 777 family and 23 net orders for the 787 family this year. Singapore Airlines also announced plans to buy 39 Boeing widebodies back in February, but it hasn't placed a firm order yet.
It's important for Boeing to rebuild its backlogs for both aircraft families. In the near term, sales prospects are better for the 787, which is a smaller and more fuel-efficient aircraft. Right now, airlines in big growth markets like China and India probably represent Boeing's best opportunities for additional 787 orders.
A mismatch between Boeing and customers
Today, airlines are far more interested in purchasing single-aisle aircraft than widebodies. This may bode well for the upcoming launch of the 737 MAX 10. However, like Airbus, Boeing has a much greater need to sell widebodies rather than single-aisle planes, as order backlogs are much shorter in the former part of the market.
It would be a huge accomplishment for Boeing to land some big orders for the 777 or 787 families next week. Investors shouldn't count on it, though. Any potential surge of orders at the Paris Air Show is likely to be concentrated around the 737, lengthening its already massive backlog.