Boeing's 2016 Orders Show Slowing Sales Boom - Update
January 06 2017 - 1:26PM
Dow Jones News
By Doug Cameron and Imani Moise
Boeing Co. said Friday that it won 668 net new orders last year
worth $94.1 billion at list price, missing its goal of having
orders match its deliveries and signaling that a seven-year boom in
sales is drawing to a close.
The haul still lifted Boeing's backlog of jet deals to 5,715
planes, but the 668 orders fell short of the 748 deliveries the
company booked in 2016, as it prepares to boost output of its
best-selling 737 single-aisle jets.
Rapid growth in air travel in Asia and the arrival of new more
fuel-efficient jets, just as oil prices started to spike, fueled
demand from airlines and leasing companies for planes from Boeing
and rival Airbus SE.
However, growth has cooled, particularly for larger twin-aisle
jets used for international flights, leading both companies to trim
production of these models.
Boeing's final order tally, including 180 cancellations over the
year, was 848. Many cancellations were customers switching to the
new 737 Max model that is due to start operating later this
year.
While carriers such as Southwest Airlines Co. and Turkish
Airlines have deferred some deliveries, Boeing executives have said
such moves remain below their historical average.
The company's share price used to be closely correlated to order
activity but this has waned in recent years, supplanted by free
cash flow used to fund new jet development and a huge share buyback
program.
Boeing spent more than $7 billion on buybacks last year and in
December the company raised the authorization for future
repurchases to $14 billion.
Airlines pay the bulk of an aircraft's price on delivery, and
Boeing shipped 748 planes last year compared with 762 in 2015.
Deliveries of military jets and helicopters slipped to 185 last
year from 186 in 2015.
Boeing shares climbed 8% last year, and Chief Executive Dennis
Muilenburg has said he expects sales to be flat in 2016 while cash
flow rises.
Mr. Muilenburg has played down the significance of matching
orders to deliveries, and in September warned the target usually
unveiled with fourth quarter earnings each January would be tough
to achieve. However, he pointed to the huge backlog of undelivered
planes as well as ongoing sales campaigns that could slip into
2017.
Boeing has yet to book an 80-plane contract completed with Iran
Air in December, citing the need for further government
approvals.
Airbus plans to book a 100-plane deal with Iran Air in its 2016
tally, due to be released on Jan. 11. Analysts expect the European
manufacturer to have secured orders for around 600 jets last year
compared with 1,080 in 2015.
While the big backlogs help counter the impact on investor
sentiment from the dip in orders, it also focuses more attention on
the fate of some big deals signed at the start of the boom.
Low-cost carriers such as Indonesia's Lion Air and
Malaysia-based AirAsia Berhad rank among the top 10 customers of
Airbus and Boeing, and some analysts doubt they will take all of
the hundreds of planes they've ordered as airline industry profits
decline.
Both manufacturers deliberately book more orders than they can
produce, expecting some cancellations or deferrals. Such moves can
actually help profits as bigger deals usually attract larger
discounts, so parceling up smaller lots of aircraft to new
customers eager to avoid a wait of several years for jets can
enhance earnings.
Boeing aims to boost profit margins to the midteens from around
10%, excluding one-off charges at present. It has cut staff and
introduced more automated manufacturing to boost productivity, as
well as branching into more profitable services work. Analysts
remain doubtful it can reach the target -- which is shared by its
defense arm -- by the end of the decade, in part because of the dip
in orders and its intense competition with Airbus.
The new 737 Max is central to Boeing's expansion plans, and
unlike the 787 Dreamliner, its development has been relatively
smooth. Norwegian Air Shuttle ASA expects to take its first planes
in May, well ahead of Boeing's original target of delivering the
initial planes by the third quarter. Southwest Airlines Co. also
expects to receive the planes this year.
Boeing is boosting monthly 737 output to 47 jets this year and
plans to raise this to 52 and then 57 as it transitions to the Max
model.
Write to Doug Cameron at doug.cameron@wsj.com and Imani Moise at
imani.moise@wsj.com
(END) Dow Jones Newswires
January 06, 2017 13:11 ET (18:11 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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