Another customer canceled an order for the 737 MAX jet Tuesday. Boeing stock dropped, but that was more about the viral pandemic than the troubled plane. But rising cancellations raise the question: When will the MAX’s problems matter again for Boeing stock?
Avolon, an aircraft lessor owned by Bohai Leasing (ticker: 000415.China), canceled an order for 27 MAX jets. “This is in addition to the 75 MAX aircraft that they canceled in [the first quarter],” wrote Vertical Research Partners analyst Rob Stallard in a Wednesday research note. “Avolon has cut its MAX commitment from 125 planes down to a mere 23 units.”
Boeing on Wednesday told Barron’s it has reached an agreement with Avolon to restructure their order book.
“In light of the COVID-19 pandemic, we continue to work with our customers to balance supply and demand with market realities, especially in the leasing sector,” a spokesperson said.
Customers have canceled hundreds of MAX orders in 2020—obviously not good news. Boeing (BA) stock dropped 4.8% Tuesday, but the drop still wasn’t the fault of the MAX. The bulk of Boeing stock declines came after 2 p.m., well after the Avolon news was out. What’s more, stock in Boeing peer Airbus (AIR.France) stock is down 4% over the past couple of days. (Airbus stock trades in Europe and trading was closed when Boeing began dropping).
Boeing still has several thousand MAX jets in backlog, compared with hundreds of cancellations. Cancellations and deferrals have affected, very roughly, 7% of MAX backlog. That figure, in one respect, isn’t all that bad, considering air travel is down roughly 80% year over year.
The pandemic is still a bigger deal for Boeing—and the entire aerospace industry. While, 737 MAX problems wiped out tens of billions in aerospace market value in 2019, Covid-19 has wiped out hundred of billions in market value.
New coronavirus cases diagnosed in the U.S. have average more than 50,000 over the past week, according to the Covid Tracking Project. That’s about 70% higher than mid-April, when the U.S. economy was dramatically shut to slow the spread of the virus. Testing since April has expanded, accounting for some of the increases.
The rise in Covid-19 cases has hit airline stocks too. Shares of large U.S. air carriers are down about 5%, on average, over the past week. The Dow Jones Industrial Average and S&P 500, for comparison, are up 1.8% and 2.6%, respectively, over the same period.
The MAX—Boeing’s newest model single aisle jet—has been grounded world-wide since mid-March 2019 following two deadly crashes within a five-month span. The grounding, of course, has mattered for the stock. Boeing shares fell, very roughly, 20% in the aftermath of the second crash. The stock has slid 45% year to date in 2020, but those losses are primarily pandemic-related.
When the MAX will matter materially for the stock again is up for debate. It could shake up Boeing shares if there are more delays returning the jet to commercial service—something Boeing hopes to do in 2020. Or the MAX could come back in focus if cancellations hit, perhaps, 1,000 jets. That number isn’t a prediction, it is only one potential milestone for when investors will react significantly to MAX news.
Boeing stock was up 0.9% in premarket trading Wednesday. U.S. stock futures edged up about 0.2% as well.
Write to Al Root at allen.root@dowjones.com
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Don’t Blame the 737 MAX Order Cancellation for Boeing Stock Drop - Barron's
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