The Boeing Company BA has decided to cut down production of the of 737 Max aircraft from 52 aircraft per month to 42 per month starting in mid-April. The temporary 23.8% cut down in production will enable Boeing to accommodate the current pause in MAX deliveries. The pause in deliveries is primarily due to fatal crashes of two of its 737 Max jets.
In the wake of the crashes, all 371 737 model aircraft, which are being used by different carriers across the globe, are being grounded.
Boeing’s Loss is Airbus’ Gain
Regaining the trust of passengers and airline operators will be a big challenge for Boeing in the days to come. Meanwhile, Airbus Group SE EADSY has secured a $35 billion mega deal from China, which might hurt the prospects of Boeing.
Boeing’s order book as of Feb 28, 2019 shows gross order of 51 aircraft from beginning of 2019 , while Airbus’s updated order book as of Mar 31, 2019 shows gross order of 62 aircraft.
Is Boeing Losing Ground?
Garuda, Indonesia’s flag carrier, which ordered 50 737 Max 8 jets at a list price of $4.9 billion in 2014, has sent a letter to Boeing cancelling the order for the remaining 49 jets. However, the backlog of Boeing 737 aircraft stands at 4,668 airplanes, which shows airline operators across the globe still have faith in Boeing’s ability.
At present Boeing is working on the 737 MAX software update that will prevent accidents such as that of Lion Air Flight 610 and Ethiopian Airlines Flight 302.
Since air travel is increasing by the day on a global scale, Boeing’s 737 aircraft’s technical problem will no doubt create an opportunity for Airbus to secure more orders for its A-320 series. If Boeing fails to come out with a proper workable solution it might result in more cancellations, leading to more orders for Airbus airplanes.
Airbus A320neo comes with two engines choices, one from Pratt & Whitney, a unit of United Technologies Corp. UTX, and another from CFM International called LEAP-1A. Also, A320neo lowers emissions and engine noise. In addition, its fuel efficiency, ability to carry two tonnes more payload and fly up to 500 nautical miles compared with other aircraft in the same class give it an edge.
Tussle in the Air
A recent long-term outlook provided by Airbus mentioned the requirement of nearly 37,390 aircraft over the 2018-2037 time frame, out of which nearly 76% or 28,550 aircraft will be in the single-aisle category. It is therefore evident that the single-aisle fuel efficient aircraft will dominate the sky in the next two decades.
Boeing launched its 737 series on Aug 30, 2011 and has received total orders for 5012 aircraft of 737 Max variety, which is in direct competition with Airbus’ A320-series. Post Airbus’ A320neo launch on Dec 1, 2010, it has received orders for 4,159 airplanes so far.
The demand for new aircraft is moving up across all categories, creating opportunities for manufacturers in the space. While the large category aircraft is dominated by Boeing and Airbus, the 70-130 seat commercial jet market is ruled by Brazilian aircraft maker — Embraer SA ERJ.
Since the crash of the second Boeing 737 Max on Mar 10, 2019 to date, shares of Boeing have decreased against Airbus’ gain in the same time frame.
Boeing sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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