Boeing ( BA -1.92% ) stock jumped 6% on Thursday, after Ryanair ( RYAAY 0.40% ) ordered 75 more 737 MAX jets. This represents Boeing's biggest 737 MAX firm order by far since the troubled jet was grounded in March 2019. It's also the aerospace giant's largest commercial jet order of 2020.
That's all good news for Boeing. Nevertheless, investors may be celebrating a little too soon. Ryanair is a growing airline with a solid balance sheet -- and it's arguably the most dedicated 737 customer in the world. That made additional orders inevitable. The real challenge for Boeing will be following up this order with additional 737 MAX deals, especially outside its home market of the U.S.
Ryanair tops up its 737 MAX order
Entering 2020, Ryanair had 135 firm orders for the Boeing 737 MAX and 75 options, all for the 737 MAX 200. This high-capacity variant of the 737 MAX 8 will hold 197 seats in Ryanair's configuration, compared to the 189 seats on its 737-800s. Management considers the 737 MAX 200 to be a game changer: Its additional seating capacity -- along with lower fuel and maintenance costs -- will significantly reduce the Irish budget carrier's unit costs. Deliveries had been scheduled to begin last year but have repeatedly been delayed due to the 737 MAX grounding.
The agreement announced on Thursday boosts Ryanair's firm order book for the 737 MAX 200 (which Ryanair has recently been calling the 737 8200) to 210 units.
Two other details may have added to Boeing shareholders' excitement. First, several news outlets reported that Ryanair plans to accelerate its 737 MAX delivery schedule. Second, Ryanair CEO Michael O'Leary said that his airline was looking to place another large 737 MAX order within about 18 months: one that would include the 737 MAX 10, the type's largest variant.
Getting orders from Ryanair was never the problem
This 737 MAX order is certainly good for Boeing, but it's not as momentous as many investors seem to believe. Ryanair has historically operated an all-Boeing 737 fleet. It has never shown much interest in changing that strategy (although it currently has some Airbus A320s from an acquisition, all of which will be phased out in the years ahead). There was really only a question of when -- not if -- Ryanair would place another 737 MAX order.
Moreover, an order for 75 planes is pretty modest given Ryanair's size. The carrier ended its 2020 fiscal year with 470 aircraft. It will probably replace dozens if not hundreds of those jets over the next decade to capitalize on the 737 MAX 200 and 737 MAX 10. It also would expand its fleet by at least 300 aircraft over this period based on its typical growth rate. Ryanair's intent to place an additional 737 MAX order within 18 months merely confirms the obvious.
Ryanair may not even be accelerating its 737 MAX deliveries very much. The company's press release indicates that all 210 aircraft will be delivered by December 2024. However, in an accompanying presentation, Ryanair disclosed a fleet plan calling for only 188 737 MAX jets in its fleet as of March 2025 (the end of its 2025 fiscal year). In any case, the carrier's initial 135 firm orders were always meant to be delivered by March 2024.
Where else can Boeing turn?
Boeing finished October with 3,365 firm orders for the 737 family in its backlog, compared to Airbus' backlog of 6,517 firm orders for single-aisle jets. The Ryanair order announced on Thursday and the potential future order dangled by O'Leary will help shore up the 737 MAX backlog. Boeing can probably count on hundreds of additional orders from its U.S. customers over the next few years as well, as U.S. airlines are far healthier than most of the global industry.
The problem is that Boeing doesn't have a deep bench of good 737 MAX prospects aside from U.S. airlines and Ryanair. In fact, three formerly fast-growing Asian airlines -- flydubai, Lion Air, and VietJet -- rank among the top five 737 MAX customers, with a combined 674 orders on the books. All three are more likely to cancel existing orders than to place new ones.
The ability of the healthiest airlines in the world to place additional 737 MAX orders has never been in doubt. The real question is whether fast-growing airlines that were struggling to make money before the pandemic will be able to execute their previous growth plans. If they can't, there's no way Boeing will be able to return to 2018 production levels, no matter how many planes Ryanair ultimately orders.