Aviation Industry Rallies, But Reliance on 737 MAX Backlog Continues to Cast a Shadow Over Boeing

Shares of Airbus and Boeing surged into the end of 2022 on strong annual performance for both companies. For a fourth consecutive year, Airbus outpaced Boeing in orders and deliveries, yet Boeing’s stock price has risen much more steeply since October. Many investors appear to be feeling better about the embattled American aviation giant now that it has escaped SEC scrutiny with just a small fine and is gearing up for a hiring spree, but it’s worth noting that the company’s legal woes regarding their 737 MAX jet are not yet over.

In late January, Boeing plead not guilty to charges of defrauding the US government. Those proceedings remain ongoing and could still have an impact on how Boeing’s reputation is perceived by potential buyers – particularly its 737 MAX jet, which makes up almost 80% of its backlog. It appears many airlines would prefer to finally leave concerns about the 737 MAX’s crashes in the past, but the proceedings regarding those incidents remain ongoing.

Related Stocks: The Boeing Company (BA), Airbus SE (EADSY)

The world’s two dominant jet manufacturers, Boeing Co. and Airbus SE, experienced a wave of rising orders throughout the back half of 2022 and into the new year. That has pushed shares of each company toward outperformance throughout the past six months. Boeing has risen even more steeply than its competitor in that period, despite persistent controversy and continually trailing Airbus’s orders and deliveries.

Throughout all of last year, Boeing delivered 480 airplanes and won 774 net new orders after allowing for cancellations in 2022, posting their best year for sales since 2018. Still, Europe’s Airbus again bested its American counterpart in both of those measures for the fourth year straight, delivering 661 commercial aircraft in 2022 and registering 820 net new orders. Airbus also reported a larger backlog than Boeing, with a supply of 7,239 unfilled orders to work through. Boeing’s backlog at the end of 2022 was just 5,430 aircraft. Per Defense & Security Monitor, both companies’ book to bill ratios improved from 2021 to 2022, as Boeing’s rose from 1.41 to 1.61 and Airbus’s from 0.81 to 1.24. The book to bill ratio measures the amount of orders coming in versus deliveries (orders received/orders shipped) and any result above one typically represents resilient demand.

What’s interesting about Boeing’s orders book, however, is that 4,312 jets (79% of the backlog) were 737 NG/MAX narrowbody jets. This is notable because virtually all of the company’s underperformance throughout the past several years can be chalked up to issues they’ve had with the design and manufacturing of the MAX model, compounded by negligence and lacking oversight by executives. For several years, MRP has covered the fallout from two disastrous 2019 crashes of Boeing 737 MAX jets within a 5-month span, culminating in…