On the surface, Boeing (BA +4.11%) might seem to be getting back on the right track following two tough years. Last month, the Federal Aviation Administration finally recertified the Boeing 737 MAX for commercial service. That paved the way for Ryanair to order 75 more 737 MAX 200s earlier this month. Last week, the 737 MAX achieved two additional milestones. On Tuesday, Boeing handed over a 737 MAX to United Airlines, marking the type's first delivery since March 2019. A day later, Brazil's Gol became the first airline to operate the 737 MAX in commercial service in nearly 21 months.
However, shoddy operations and a shaky order backlog continue to plague Boeing. The aircraft manufacturer recently reported another huge drop in deliveries for November. That stood in stark contrast to Airbus (EADSY 0.26%), which is rapidly getting back to business as usual.
Another awful month for Boeing
Boeing delivered just 50 jets in the first quarter of 2020, as the 737 MAX grounding prevented it from participating in the highest-volume segment of the commercial jet market. The onset of the pandemic then made matters much worse. Boeing delivered just 20 commercial jets in the second quarter and 28 in the third quarter. For comparison, Boeing averaged more than 200 deliveries per quarter in 2018.
Image source: Boeing.
Many airlines have significantly reduced their cash burn in recent months. Furthermore, there has been considerable progress toward distributing vaccines widely in 2021. That should be driving a recovery in aircraft deliveries. Instead, Boeing delivered just 13 commercial jets in October. November was even worse. The delivery total plummeted to just seven, six of which were freighters or military variants. Weak demand for wide-body aircraft partly explains this dreadful result. However, the company is also struggling with widespread quality control problems, particularly for its 787 Dreamliner plant in South Carolina.
The low delivery total foreshadows another quarter of high cash burn for Boeing (it burned over $15 billion in the first three quarters of 2020). Adding insult to injury, Boeing lost over 30 additional 737 MAX orders last month as struggling airlines and leasing companies continued to restructure their order books.
A whole different story at Airbus
Airbus also experienced a sharp drop in aircraft deliveries earlier this year, handing over only 74 planes to customers in the second quarter. However, it is benefiting from its leadership position in the single-aisle market, where demand is expected to recover relatively quickly. As a result, Airbus' commercial aircraft deliveries nearly doubled sequentially to 145 units in the third quarter.
Furthermore, Airbus is on track to make Q4 the best quarter of the year. It delivered 72 jets in October, including 55 narrow-body models and 17 wide-body ones. Last month, it delivered 64 aircraft, including 56 narrow and eight wide. All but one of the 136 jets Airbus delivered in the first two months of the quarter were passenger planes.
Image source: Airbus.
If history is any guide, Airbus will deliver even more jets in December than it did in each of the past two months. Of course, deliveries are still down year over year. However, Airbus has further scaled back production, building roughly 50-55 jets per month. As a result, it is steadily working down its inventory of undelivered jets, which stood at approximately 135 entering the fourth quarter. This will do wonders for Airbus' cash flow. It also supports Airbus' plans to boost the A320-family production rate from 40 per month to 47 per month as soon as next fall.
Night and day
While Airbus is quickly addressing the inventory that built up earlier this year, Boeing's inventory continues to grow. Between the 737 MAX and 787 alone, there are more than 500 undelivered planes parked at a variety of facilities. It will take at least two years to deliver all those aircraft, delaying Boeing's efforts to repair its balance sheet.
Boeing's backlog disadvantage has huge long-term implications beyond the immediate crisis. The wide-body market won't recover anytime soon, and Airbus' narrow-body backlog is almost twice as large as Boeing's. Based on the likely level of aircraft demand over the next 10 years, there aren't enough additional orders up for grabs to allow Boeing to sustainably return to 2018 production levels.
Boeing stock has rallied strongly since late October as the aviation industry's long-term outlook has improved. However, considering the short- and long-term challenges Boeing faces, investors looking to bet on an industry recovery might want to consider buying Airbus stock instead.
