Boeing’s MAX backlog, already hit hard as lessors re-shuffle their commitments, could erode even more as airline financial situations deteriorate amid ongoing depressed passenger demand driven by the persistent COVID-19 pandemic, Canaccord Genuity warned.
The MAX backlog stood at 4,172 as of June 30, Boeing’s official figures show. This does not include more than 600 orders considered questionable under the ASC 606 revenue-recognition standard Boeing adopted in 2018, even though they have firm contracts. Even factoring these out, Canaccord sees another 350 or so orders on top of the 600 lost since the start of 2019 as being at risk.
“We believe the ASC 606 adjustments reflect much of the current MAX uncertainty ... but we believe that another ~10% of the MAX backlog could be at risk due to soft demand and the financial health of airlines” into 2021, Canaccord analyst Ken Herbert wrote in a research note. “Much of the initial backlog pressure has come from leasing companies. We expect more pressure from airlines over the next 6-12 months.”
Boeing has delivered 58 MAXs since 2019, Aviation Week Intelligence Network Fleet Data shows—all of them in 2019 before the aircraft was grounded in March of that year and Boeing halted deliveries. It has about 450 built but undelivered MAXs awaiting regulatory approval before they can be handed over to waiting customers. But many eventual recipients have announced plans to slow their delivery flows to accommodate reduced demand stemming from the global COVID-19 outbreak.
For instance, Southwest Airlines’ pre-pandemic plan called for 27 MAX deliveries in 2020, assuming regulators cleared it with sufficient time left in the calendar year. But in April it revised its schedule downward. Southwest has 27 MAXs in storage at Boeing, meaning the carrier will not need just-built models from Boeing’s production line until sometime in 2021.
MAX production was halted in January so Boeing could conserve cash and manage the build-up of the stored, undelivered aircraft. It re-started several weeks ago, and Boeing has not publicly revealed its production-rate plans. Canaccord projects Boeing will produce 28 MAXs in the third quarter and 36 in the fourth quarter, suggesting a notional rate of about 11/month.
Deliveries, which cannot resume until the model is cleared by the FAA and other regulators, will start more slowly before surpassing production in early 2021 as Boeing focuses on clearing the stored inventory.
“Even if MAX recertification is finally achieved this fall, Boeing faces an enormous challenge in ramping production and delivery volumes anywhere near back to the 52/month previously reached in 2019,” Herbert wrote.
Under Canaccord’s model, Boeing’s 737 program production—which is mostly MAXs but includes a few business jets and military variants based on the 737 Next Generation—will reach 47/month in mid-2023. Monthly delivery rates will peak at 62/month during the first half of 2023.
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