Boeing 2016 plane orders lag estimates

EVERETT — The Boeing Co. is running out of time to hit its goal of getting roughly one new order for every airplane it delivers this year.

The company posted a slew of orders in October, but after taking out cancellations this year, Boeing has a net total of 462 orders as of Nov. 15. That is 62 percent of the more than 745 airplanes the company expects to deliver this year.

Airplane orders have plummeted from just two years ago when Boeing posted a record 1,550 orders. Airlines went on a buying spree as their industry shook off the 2008 global recession, and now they are letting their credit cards cool off.

Boeing executives say it is just the latest pause in an industry with a history of regular up-and-down cycles. This time around, though, the company and its chief rival, Airbus, have huge backlogs, allowing them to weather slowdowns in new orders.

Both companies are still bullish about demand over the next decade, and are ramping up overall airplane production.

“Keep in mind we had a very strong month for our widebody airplanes in October, and we have several sales campaigns currently in work,” said Randy Tinseth, a vice president and head of marketing at Boeing Commercial Airplanes.

Many analysts share Boeing’s view that demand for new airplanes will come back. That forecast is driven by expectations of sustained economic growth in Asian and Pacific markets, and the need to replace older aircraft in North America and Europe.

Some analysts, though, say a big chunk of those orders were placed during the most recent order frenzy, and rising economies, such as China, are showing signs of slowing down. Under those conditions, they say, the industry can expect flat demand for the next few years.

Either way, Boeing has plenty of work in its order backlog for more than 5,800 commercial airplanes. That is enough to keep its assembly lines busy well past 2020.

Boeing’s deal with Iran, which wants to buy 80 airliners and lease another 29, could be undone by Republicans opposed to compromise with Tehran. On Thursday, the GOP-led U.S. House of Representatives voted 243-174 to block the sale, which was a carrot offered to Iran as part of its agreement with the U.S. and other world powers to curtail Iran’s nuclear program.

President-elect Donald Trump railed against the agreement on the campaign trail as weak and a mistake.

If the deal is further delayed or falls through, Boeing is not rashly chasing orders. “There’s nothing that’s driving us with a sense of urgency that we have to hit a book-to-bill of one-to-one this year,” Boeing CEO and Chairman Dennis Muilenburg said at an investment conference in September. The company is “not going to do anything unusual to hit a book-to-bill target for the year.”

The politics of the Iran sale are secondary to the financial realities, said Richard Aboulafia, vice president of the Teal Group, a Washington, D.C.-area consulting firm. “Iran’s ability to pay for the jets and finance them has always been in question.”

Across the industry, it looks as if airlines are catching their collective breath after years of growth capped with a whirlwind rush of orders in 2012 through 2014, Aboulafia said.

In 2014, Boeing received 1,550 new orders — 1,432 net orders after subtracting cancellations that year. Last year, gross new orders dropped to 878 and net orders fell to 768.

“This year is a pretty big harbinger of what the future looks like,” at least for the next few years, he said.

But if Boeing and Airbus, which is experiencing similar developments, get nearly as many new orders as airplanes they deliver during the next few years, “that would make for an amazing decade” for the industry, he said.

Demand for big, twin-aisle jets has dropped significantly in recent years. From 2002 to 2011, orders for more profitable twin-aisle airplanes made up 34 percent of all Boeing’s orders. That number dropped to 20 percent of orders since 2012.

That shift almost certainly will pinch Boeing’s bottom line in coming years, as it churns out more less-profitable airplanes.

Since 2012, Boeing has booked orders worth nearly $850 billion at current list prices. (Actual sales prices are considerably lower after contract negotiations.) While orders for twin-aisle jets made up one-fifth of orders, they are worth about $362.5 billion — nearly 43 percent of that total value.

Industry watchers expect orders for Boeing’s twin-aisle airplanes to rebound as its new 777X jetliner gets closer to first delivery, which is scheduled for 2020.

Even so, as Boeing’s order book is increasingly dominated by less-profitable 737 work, “something’s gotta give,” Aboulafia said.

It is hard to see how Boeing can balance its current emphasis on rewarding shareholders under those conditions, he said.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com. Twitter: @dcatchpole.

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