Shares of Boeing (NYSE:BA) fell nearly 5% on Tuesday after the company released first-quarter commercial order and delivery information, including the cancellation of 150 orders for 737 MAX aircraft. It's by now obvious that the COVID-19 pandemic has had a profound effect on Boeing's business, but these numbers are fresh evidence that the impact will be long-lasting.
Boeing on Tuesday said customers had canceled orders for 150 MAX jets in March. Net cancellations spread over all programs for the month totaled 119, thanks to Boeing booking a few new orders for larger aircraft and for military planes.
For the year, Boeing has now recorded net cancellations of 307 planes.
Boeing came into the year with bright hopes, riding high on a near-decadelong commercial aerospace up cycle and expecting to return its grounded 737 MAX to service by midyear. But those hopes have been crushed by the pandemic, which has zapped travel demand and caused airlines once focused on expansion to instead ground planes.
The MAX a few years ago was poised to be a cash cow for Boeing, but it now appears demand for the plane will be muted into 2021 at least. And it is possible Boeing will never hit the full production levels it had hoped to achieve for the plane, which will eat into the long-term profitability of the program.
Boeing shares recovered some of their initial losses as the day went on, perhaps because the numbers, while stark, were not a surprise.
This is hardly a problem for Boeing alone, as rival Airbus also reported anemic delivery numbers in March. Airbus, unlike Boeing, has already announced production cuts, and that's likely the next shoe to drop at Boeing.
Shares are down 55% year to date. The core business has a healthy long-term outlook, but the next few years could be challenging. Given Boeing's myriad of other questions, I'd advise investors to avoid buying in despite the declines.