At Boeing and Airbus, Finished Airplanes Pile Up
Date: Wednesday, July 29, 2020
Source: The Wall Street Journal
Airlines are putting off jet deliveries amid coronavirus, depriving manufacturers and their suppliers of cash
Boeing Co. BA -2.60% and Airbus SE EADSY -0.70% are making planes that airlines aren’t collecting, straining their finances as the coronavirus pandemic wreaks havoc on travel and the aerospace industry.
Airlines in many cases say they don’t want the aircraft for now, because they are unable to fill them profitably during a historic plunge in demand for flying. Travel restrictions are also hindering employees of some airlines from getting to the U.S. and Europe to pick up planes from factories.
The result: finished airplanes with nowhere to fly, and less cash for Boeing, Airbus and their suppliers as they slash production and payrolls. Customers generally pay more than half the purchase price when they receive aircraft. Boeing delivered 20 aircraft in the second quarter, down from 90 in that period last year. It was the lowest quarterly total since 1963, the early part of the jet age, according to an analysis of Boeing delivery data.
Airbus reported delivering 74 jets in the second quarter, down from 227 in the same period a year before. Among the European plane maker’s undelivered jets are four ordered by Delta Air Lines Inc., according to consulting firm Ascend by Cirium. Delta has said it won’t take delivery of new jets this year.
“Clearly, we’re in a situation where we don’t need any aircraft,” Delta Chief Executive Ed Bastian said on a call earlier this month.
The drop in deliveries has added financial stress at the plane makers, which analysts expect to report burning through billions of dollars in cash during the second quarter. The fallout is expected to extend to suppliers such as aircraft-engine maker General Electric Co., which like the plane makers receive much of their payment when a plane is delivered.
Boeing, Airbus and GE are slated to report their second-quarter earnings this week.
A big reason for the pileup at Boeing is the grounding of the 737 MAX since March 2019. More than 420 remain undelivered after regulators banned the MAX from carrying passengers following two fatal crashes that took a total of 346 lives. MAX production, which Boeing halted for more than four months starting in January, is set to reach 31 a month next year, about half the rate before its grounding. The Federal Aviation Administration isn’t likely to grant the MAX approval to resume commercial service until late October or early November, according to U.S. government and industry officials.
A slowdown in deliveries of wide-body jets, which are bigger than the MAX, has left Boeing stuck with those aircraft too. Demand for those planes, which are often used in international travel, is expected to recover more slowly than that for smaller planes used for short-haul trips. An estimated 35 wide-body 787 Dreamliner, 777 and 747 jets were awaiting delivery in early July, according to Ascend by Cirium.
Boeing had been producing 14 Dreamliners and five 777s a month before saying in April it would cut production rates. As parking near its factories fills up, Boeing has begun storing some jets at an airfield in Victorville, Calif., a person briefed on the company’s plans said.
Boeing Chief Financial Officer Greg Smith said earlier this month that the company is negotiating delivery timing with customers that will help determine production rates. Such negotiations can result in airlines agreeing to purchase other aircraft or services in later years. Aircraft-purchase contracts generally allow buyers to walk away without financial penalty if manufacturer delays postpone deliveries for a year or more. Boeing already has slashed production and moved to cut 10% of its 160,000-employee global workforce in response to plunging air-travel demand.
“Comparisons with previous years are meaningless when the Covid-19 pandemic is affecting the world economy in an unprecedented manner,” the Airbus spokesman said.
Some Boeing and Airbus customers also are canceling orders outright. Norwegian Air Shuttle AS A said in June that it was canceling outstanding orders with Boeing for five Dreamliners and 92 MAXs. Four finished Dreamliners that the discount European carrier had been slated to operate are parked at Charleston International Airport in South Carolina and Paine Field in Washington state, according to Ascend by Cirium and aviation-tracking service Flightradar24. Norwegian declined to comment.
Air Lease Corp. has two Dreamliners awaiting collection in South Carolina by its client, China Southern Airlines Co., according to Ascend by Cirium and Flightradar24. Their delivery is delayed because of travel restrictions, Air Lease CEO John Plueger said. Employers don’t want staff getting “hung up for weeks and weeks” in quarantine, he said.
Some customers are waiting months rather than weeks to accept new jets, according to Ascend by Cirium. United Parcel Service Inc. has had a Boeing 747 cargo plane awaiting delivery in Everett, Wash., since it first flew in February, according to the consulting firm. Former Boeing executives said such a long delay was unusual. A UPS spokesman said the freight carrier would take delivery of the aircraft.
“Due to the Covid-19 pandemic, we’ve worked with Boeing on adjustments to delivery schedules, but our overall plans remain unchanged,” the spokesman said.
Carriers remain in talks over deliveries of airplanes slated for production in coming years.
United Airlines Holdings Inc. said last week it had struck a deal with Boeing to take no new aircraft in 2022.
American Airlines Group Inc. is discussing when to accept MAX jets on order in coming years, Chief Financial Officer Derek Kerr said Thursday.
American had threatened to cancel 17 MAXs due for delivery this year but said it would take them after it secured financing for nearly all the jets.