Boeing’s 787 delivery drought shows crisis brewing behind rally

Boeing Co. didn’t sell or deliver any of its marquee 787 Dreamliner jets in May, a reminder that the U.S. planemaker is still enveloped in crisis from the coronavirus pandemic even as its stock has skyrocketed on optimism that travel will rebound.

The Chicago-based manufacturer shipped only four commercial jets last month, down from 30 a year earlier. The Dreamliner, a crucial source of cash, was shut out of monthly deliveries for the first time since regulators temporarily suspended the wide-body aircraft from flying after two battery fires in 2013, according to Bloomberg Intelligence.

Boeing recorded just nine gross aircraft orders for the month, three of them air freighters that were re-sold following a legal spat with the original customer, Russia’s Volga-Dnepr Group. The number of sales lost this year reached 602 when including an accounting adjustment that assesses the financial health of customers and contractual details of orders.

The lackluster results underscore the challenges to Boeing from a sharp contraction in travel demand and the extended grounding of its 737 Max. Despite Chief Executive Officer Dave Calhoun’s repeated warnings that aerospace won’t fully recover until mid-decade, his company has become a darling of investors and analysts who are convinced the worst is over. While that may be true, the aviation industry faces a difficult few years.

Historic Downturn

“Financially, 2020 will go down as the worst year in the history of aviation,” Alexandre de Juniac, director general of the International Air Transport Association, said in a report Tuesday before Boeing posted its results. The trade group projects that global airlines will lose $84 billion this year, and nearly $16 billion in 2021. “Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us.”

Boeing shares declined 3.8% to $221.79 at 11:58 a.m. in New York trading. Through the close on Monday, the stock had soared 73% since May 1 to eclipse its corporate peers. The 30-member Dow Jones Industrial Average rose just 16% over that period.

Cash-strapped carriers are shrinking fleets and postponing new aircraft deliveries as the global travel industry struggles to survive through the pandemic. While Airbus SE also is being squeezed, the pressure is especially acute for Chicago-based Boeing, which is working with regulators to end a nearly 15-month flying ban for the 737 Max following two fatal crashes.

Lessors and other unidentified customers scrapped orders for 14 Max jets in May, bringing the total cancellations for the grounded aircraft to 313 this year. Buyers typically can opt out of a delivery that has been delayed for 12 months or more without facing penalties. The company has been working out deals that allow aircraft leasing firms to shed speculative Max orders to help preserve pricing.

Cargo Demand

Air freighters were a rare bright spot for Boeing, accounting for all its monthly orders and three of the four jets delivered. The company’s cargo haulers have been in demand to replace capacity lost when airlines parked thousands of long-range passenger jets in March as travel ground to a halt around the world.

A U.S. District Court judge in Seattle last week denied an attempt by Volga-Dnepr to block three of those sales: for two 777 freighters and a cargo version of the 747-8 jumbo. The Russian cargo company sought to reclaim the aircraft despite telling Boeing earlier this year that it was financially distressed and didn’t need them, according to court filings.

United Parcel Service Inc. bought the 747 freighter, according to Boeing’s website, while the buyer of the 777 jets wasn’t identified. In an exhibit filed with the litigation, Boeing indicated that the unnamed customer is poised to purchase 787 Dreamliners and 777X jets.