Boeing (BA -3.39%) reported its latest order update on Thursday, confirming that customers have placed orders for three new 737s.
In the grand scheme of things, three plane orders aren't a lot for a company that delivered 762 aircraft to its customers last year. This actually works out to less than one-half of one percentage point's worth of Boeing's annual production rate, ordered in a one-week period representing 2% of the year. So you could argue the week was something of a disappointment, with new Boeing orders running about 75% behind the rate at which they must run to replace fulfillments of existing orders.
The significance dwindles further when you notice that, alongside Boeing's announcement of three new plane orders, the company also recorded two order cancellations. Specifically, Boeing says that the first full week of February saw one "Business Jet/VIP" customer order one 737 and an "Unidentified Customer(s)" order two more 737s, while somebody canceled orders for two 737s.
As we've come to understand, whenever we see 737 aircraft, in particular, receive "X" number of new orders in conjunction with the same "X" number of cancellations, we're usually looking at a situation in which old orders for 737 NG aircraft have been substituted and replaced with orders for 737 MAX aircraft instead. That's probably the situation here, as well.
Nonetheless, for consistency's sake, let's run down the latest tally. As of early February, Boeing's order book now shows:
- 63 orders for single-aisle Boeing 737s
- six orders for widebody 777s
- one single order for a 787 widebody
That's 70 gross orders total. Minus this week's reported two "cancellations," Boeing's net orders now stand at 68 aircraft.
Why this matters
Announcements of the "two steps forward, two steps back" variety, like we saw this week, may not seem significant. But each time Boeing makes a MAX-for-NG switcheroo, it should collect about a $14 million bump in list price on the substituted 737. (According to Boeing's published price list, a 737 MAX 8, for example, costs $110 million, while a similar-size 737-800 NG sells for just $96 million.) It stands to reason, then, that each time Boeing substitutes a 737 MAX order for a 737 NG, it gives an appreciable boost to the company's top line -- and its bottom line, too.
Why this might prove significant for Boeing investors is this: Those boosts may come even more frequently in coming weeks and months, because it won't be long now before Boeing can provide essentially "same-day delivery" on new-ordered 737s.
Last month, you see, Boeing confirmed the successful first test flight of a 737 MAX, and it's already making moves to switch over factory production from NGs to MAXes. By 2017, when Boeing expects to begin delivering 737 MAXes to its customers, the company will be building the new birds at the rate of 47 planes per month -- roughly two new planes built every workday of the week.
Yes, I know. Real same-day delivery isn't something Boeing would offer. It's got a backlog of several thousand 737s already promised to existing customers before new buyers get their turn in line. But you get the point: 737 MAXes will soon become the 737 model to buy, and chances are good that folks still waiting for their old-model 737 NGs when the MAX becomes available will be upgrading their orders to the newer, shinier models at an increasing pace.
At $14 million a pop, those upgrade fees are going to add up -- and that's good news for Boeing.