Following a big order freeze that lasted for much of 2019 and 2020, Boeing (BA -0.24%) has finally started winning more orders for the 737 MAX in 2021. The U.S. aerospace titan got its biggest 737 MAX order yet last month, as United Airlines ordered 200 more units of the troubled jet.
Unfortunately, other customers continue to reduce their 737 MAX order books, preventing Boeing from making much progress toward rebuilding its backlog. Moreover, the company recently discovered another production problem affecting the 787 Dreamliner, further disrupting its production and delivery plans. These issues highlight just how far Boeing is from returning to health.
Limited backlog progress
Boeing booked 219 new firm orders in June. In addition to the huge United Airlines deal, FedEx firmed up orders for 18 additional 767 freighters and one 777 freighter. Meanwhile, Boeing delivered 45 commercial jets, with the 737 MAX accounting for 33 of those deliveries.
Image source: Boeing.
Nevertheless, Boeing's backlog of commercial jet orders grew by just 45 units last month, from 4,121 to 4,166. This implies that 129 orders were removed from the backlog, offsetting more than half of the month's orders.
Most notably, flydubai canceled orders for 65 737 MAX jets in light of the pandemic's severe negative impact on international travel. (That still leaves it with 170 737 MAX orders. Given that flydubai currently operates just 52 planes, it could take a decade or more to absorb that many new aircraft.) Boeing also increased its estimate of orders that are likely to fall through, effectively reducing its backlog further.
Looking at the first half of the year, the story is similar. Despite booking 505 gross orders for the 737 MAX, Boeing's 737 MAX backlog has increased by just 52 units year to date.
The Dreamliner nightmare continues
Adding to the company's woes, Boeing acknowledged on Tuesday that it had discovered a new defect affecting the undelivered 787 Dreamliners in its inventory. This has forced it to halt 787 deliveries again.
In the near term, Boeing will reduce Dreamliner output below the recent production rate of five per month. This will allow it to prioritize inspections and modifications of previously built 787s so that it can finally deliver those jets. However, slowing production further and increasing the scope of inspections and rework will drive Boeing's costs higher, aggravating the company's losses.
Image source: Boeing.
Boeing also warned investors that it now expects to deliver fewer than half of the roughly 100 787 Dreamliners in its inventory by year-end. Previously, the industrial giant had expected to deliver a substantial majority of those jets in 2021. The incremental delivery delays will cause Boeing to burn more cash in the near term, adding to the stress on its already-weak balance sheet.
Boeing's two big challenges remain
Bulls may have hoped that June would mark a turning point for Boeing, thanks to the big United Airlines order. Instead, it became even clearer that the company will not recover quickly from the dual blows of the prolonged 737 MAX grounding and the COVID-19 pandemic.
First, despite bagging another big order, Boeing has made very little progress in rebuilding its 737 MAX backlog this year. Moreover, its customer concentration has grown enormously. United Airlines, Southwest Airlines, and Ryanair now account for nearly 30% of the 3,334 737s on order. That could hurt its profitability, as large, established airlines generally negotiate lower pricing on jet purchases.
Second, the ongoing Dreamliner production problems are hindering Boeing's efforts to rebuild its reputation. Until the company demonstrates that it can build the 787 reliably and deliver it to customers on time, few airlines will be willing to place new orders for Boeing's top-selling wide-body model. That will force Boeing to keep production well below pre-pandemic levels for many years to come.
In short, while Boeing has won a few big orders this year, they won't do much to get the company's earnings and cash flow back to the highs of 2018 -- or anywhere close. That will keep Boeing stock grounded for the foreseeable future.
