February was not a good month for Boeing regarding its 737 MAX order book. The aircraft manufacturer had five orders changed or canceled, wiping a total of 59 aircraft off its backlog. These cancellations represent a loss to the planemaker of $2.9 billion. In fact, Boeing logged more cancellations for commercial aircraft in February than it did actual orders.
Boeing’s beleaguered 737 MAX is edging ever closer to taking to the skies once again, however, airlines are pulling out of orders just as fast. Last month alone, the manufacturer had to wipe 59 aircraft from its backlog of undelivered MAX planes. At the end of 2018, there was a backlog of 4,675 units.
The cancellations in February were mainly due to Air Lease Corporation which has so far canceled 27 aircraft of its total order for 141. The leasing company already has 15 MAX aircraft in its fleet.
Air Canada also reduced its initial order of 61 aircraft by 11. As it already has already taken delivery of 24, there are now just 26 outstanding. Oman Air previously had 20 on order but has slashed this by 50% and now only wants 10 of the narrowbody aircraft.
A private VIP business jet customer has also canceled its order for just one jet and Japan Investment Adviser has canceled its entire order for 10. The total of 41 cancellations in the month, 59 from the five customers, is staggering when you consider the manufacturer didn’t receive any firm order in January. It also only bagged 18 total orders. That’s a total order activity of 28 cancellations.
What does this mean for Boeing?
While these cancellations equate to just 2.5% of the MAX backlog and only 1% of the entire MAX order book, the numbers add up. Last year, Boeing lost a huge order of 182 planes when budget carrier Jet Airways went out of business.
According to Seeking Alpha, the cancellations are 25% of the initial order numbers for those five customers. If other customers cancel similar amounts, Boeing’s figures are going to be a lot worse off than just 1%. If Boeing were to lose 25% of its 737 MAX orders, that means it would lose out on around $70 billion.
Boeing is also currently sat on an inventory of 400 737 MAX, currently parked in storage sites. While it says it hopes to get production up and running again in May, none will be delivered until the plane is actually certified to fly again. Many airlines have removed the MAX from their schedules until July or August.
Not all bad news
The cancellations are worth up to $2.9 billion but Boeing hasn’t lost all that money. Oman Air’s cancellation totals up to $500 million. However, it did place orders for four 787-9s. It also converted an order for four 787-8s up to an additional four 787-9s. The value of these orders is $700 million so Boeing won’t actually be losing any money here.
It’s a similar situation regarding the Air Lease Corporation order. Last year it canceled a MAX order worth almost a billion but then ordered 787s worth the same amount. Its February cancellations cost Boeing $450 million. But then it placed an order worth $460 million for more 787-9s.
So, while Boeing may be getting used to canceling MAX orders, it is doing a very good job of switching customers over to other Boeing aircraft. The backlog in the production of the MAX means the pressure is being lifted so the cancellations may actually be doing Boeing a favor. So long as the MAX doesn’t remain grounded for much longer.