By Siddharth Philip / Bloomberg
Boeing’s beleaguered 737 Max program suffered a further blow as plane-leasing firm Avolon Holdings canceled a deal for 75 jets valued at $8 billion at list prices as the covid-19 pandemic hits travel demand.
Avolon, one of the top 20 customers for a model grounded for more than a year after two fatal crashes, will also defer delivery of 25 Boeing and Airbus narrow-bodies as it cuts the order book by 40%, it said in a statement Friday.
The decision compounds the crisis surrounding the Max, the return of which has been further clouded by the coronavirus outbreak. It comes a day after Boeing Chief Executive Officer Dave Calhoun offered an exit package to thousands of workers as the pandemic all but obliterates purchases of new planes.
“I do expect this to be the start of loads of deferrals and cancellations. I suspect that the Max is easier to cancel, and get back your deposit, as its been grounded for almost 13 months now,” said Nick Cunningham, an analyst at Agency Partners in London. “We could be staring at the worst recession ever, and I suspect most airlines don’t want to be thinking about adding any new capacity.”
Boeing rose less than 1% to $123.99 at 9:47 a.m. in New York. The stock had declined 62% this year through Thursday, the biggest drop on the Dow Jones Industrial Average.
“As we have produced fewer Max airplanes than planned, we have implemented these adjustments to regain flexibility in managing the more than 4,300 unfilled 737 Max orders,” Boeing said by email. “This is also the right step to align to the realities of the marketplace.”
Calhoun has said the company faces a “new reality” of a jetliner market taking years to recover when the world emerges from the virus.
Avolon is also canceling orders for four Airbus A330neo wide-body aircraft.
The European planemaker is mulling production cuts for its A320-series, the main rival to the Max, people familiar with the situation have said.
Boeing, though, is particularly exposed because traffic has slumped most on long-haul routes served by the wide-body jets that are the only ones it’s been delivering since the Max was grounded.
Among leasing firms, Avolon is in an especially tough position as it’s part-owned by China’s debt-laden HNA Group Co., a once-sprawling conglomerate now under state control after being battered by the coronavirus outbreak.
Avolon CEO Dómhnal Slattery said the moves will reduce the Dublin-based firm’s aircraft commitments in the 2020 to 2023 time-frame from 284 to 165, and that it has $5 billion in cash and undrawn secured warehouse facilities.
The leasing firm still has more than 190 A320-series jets on order, according to Airbus data.
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