During the past week, Boeing (NYSE: BA) accumulated a stunning 571 orders and commitments for new airplanes at the Paris Air Show. This easily surpassed Boeing's best air show performances from the boom years of 2011-2015.
More than 500 of those orders and commitments were for the fast-selling but underrated 737 narrowbody family, driven in part by the launch of Boeing's new 737 MAX 10 aircraft. However, the headline numbers can sometimes be deceptive, due to the way that Boeing counts its order intake at the major air shows. Let's take a closer look at Boeing's 737 order activity for the week.
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Firm orders were relatively few in number
At the Paris Air Show, Boeing announced a combination of new firm orders, commitments (which are not yet firm), and conversions from one aircraft model to another. It also revealed the customers for a number of previously unidentified orders.
From a business perspective, the most significant deals are new firm orders, since these represent incremental sales that are locked in with binding contracts. Boeing announced just 97 new firm orders for the Boeing 737 this week.
CALC, a Chinese aircraft lessor, topped the list by ordering 50 737 MAX aircraft. Other firm orders for the 737 MAX included 10 for Ryanair, 15 for Okay Airways, 20 for Aviation Capital Group, and two for Norwegian.
Separately, Qatar Airways stated during the air show that it had firmed up part of an earlier commitment, ordering 20 737 MAX 8s.
Non-firm commitments drove most of the volume
Most of Boeing's deal volume at the Paris Air Show consisted of memoranda of understanding (MOUs) or other non-firm commitments. An airline has no obligation to go through with a memorandum of understanding, and so sometimes MOUs never turn into firm orders.
However, that's the exception, not the rule. As a result, while some analysts discount the importance of these deals, they are still a relatively good indication of demand. Boeing reeled in an impressive 418 commitments for 737 jets at the Paris Air Show.
Most notably, Boeing capped the air show on Thursday by announcing an agreement with a "major unidentified airline customer" for 125 737 MAX 8s. Other major deals announced during the week included an MOU from aircraft lessor Avolon for 75 737 MAX 8s, a new commitment for 50 737 MAX 10s from Lion Air, and an MOU from CDB Aviation Lease Finance for 46 incremental 737 MAX aircraft.
Boeing also announced a series of smaller 737 MAX MOUs for between 10-20 aircraft each, totaling 122 incremental commitments. (The buyers were Japan Investment Adviser, Air Lease, Xiamen Airlines, Ruili Airlines, ALAFCO, BOC Aviation, Tibet Financial Leasing, and SpiceJet.)
Plenty of customers opt for the 737 MAX 10
One of the big questions ahead of the Paris Air Show was whether Boeing's new 737 MAX 10 would gain traction. It blew past expectations with 361 orders and commitments, highlighted by United Continental converting 100 of its 737 orders to the MAX 10.
In fact, 214 of the orders and commitments for the 737 MAX 10 were converted by existing customers from other 737 variants. To some analysts, this was a red flag. However, Boeing noted that all of its 737 production capacity is sold out until 2022, so airlines that want the 737 MAX 10 in 2020 or 2021 had to convert existing orders.
In any case, Boeing also secured hundreds of additional orders and commitments for the 737 MAX 8 this week. Thus, it's clear that conversions to the 737 MAX 10 aren't hollowing out the rest of the 737 backlog. (That said, the 737 MAX 9 variant -- which was never especially popular -- is clearly falling out of favor.)
All in all, Boeing's sales team had a great week in Paris. As long as they can firm up most of the commitments announced last week before year-end, Boeing should have no trouble increasing its order backlog in 2017.
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