Boeing 737 MAX Orders Finally Start to Flow

Boeing‘s (NYSE:BA) top-selling jet has struggled mightily over the past two years. The aircraft manufacturing giant booked relatively few firm orders for the 737 MAX in 2019 and 2020 and lots of cancellations. This caused its order backlog to shrink dramatically.

So far, 2021 is shaping up to be a much better year for the 737 MAX, with order activity starting to resume. Still, the aircraft program has a long way to go to return to health.

A double-whammy for the 737 MAX

The grounding of the 737 MAX two years ago — following a pair of fatal accidents — discouraged airlines from placing new orders for the type. That caused the 737-family order backlog to fall from 4,708 units at the end of 2018 to 4,398 at the end of 2019.

Order activity might have recovered in 2020, due to high demand for narrow-body jets and long lead times at Airbus. But then, the COVID-19 pandemic struck, decimating air travel demand. Rather than being desperate to line up deliveries of new jets, airlines suddenly had more planes than they could use.

Image source: Boeing.

As a result, Boeing booked just 112 firm orders for the 737 MAX last year. Meanwhile, it suffered a slew of order cancellations. By the end of 2020, Boeing’s 737 backlog had fallen to 3,282 units: down 30% from two years earlier.

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Momentum is returning

The 737 MAX posted another month of negative net orders in January, causing the backlog to shrink again. However, there have been some signs of life since then.

In February, United Airlines added another 25 units to its 737 MAX order book. Boeing also recorded orders for 14 737 MAX jets from one or more unidentified customers. Even after factoring in order cancellations, Boeing closed the month with 12 net orders for the 737 family.

This week, Boeing announced that 777 Partners — an investment firm affiliated with several low-cost carriers — had ordered 24 737 MAX 8s, with purchase rights for 60 more. This deal is significant because 777 Partners is a new customer, whereas Boeing had been relying heavily on its top customers to jump-start 737 MAX order activity.

Additionally, Southwest Airlines (NYSE:LUV) is close to placing an order for dozens of 737 MAX 7s, according to Reuters. Last fall, Southwest’s management said that it would likely place an order in 2021 to replace its oldest 737-700s starting around 2025. While the low-fare airline was considering the A220 in addition to the 737 MAX 7, Southwest executives have been clear about their preference to maintain a single fleet type for as long as possible. Thus, this potential order wouldn’t come as a surprise.

That said, this was a “must-win” order for Boeing, so it will be encouraging to see the company seal the deal. And while Southwest will probably place fewer than 100 firm orders for the 737 MAX 7 this year, its eventual requirement for that fleet could be around 300 aircraft.

Will it continue?

The thaw in order activity in recent months is great news for Boeing. Still, between likely order cancellations and planned 737 MAX deliveries, Boeing would need quite a few additional orders beyond what is already in the pipeline to keep its backlog stable in 2021.

Boeing must continue winning over new customers and securing additional orders from airlines beyond the “usual suspects” such as Southwest, United, and Ryanair. Firming up a 2019 commitment for 200 737 MAX jets by International Airlines Group — the parent of British Airways, Iberia, and several other European airlines — would be a great start. However, it’s not clear whether IAG intends to move ahead on that order.

In short, Boeing is finally making progress toward restoring the 737 MAX aircraft program to health — but it has a lot of work left to finish the job.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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