Boeing’s Large Backlog Trumps Fears

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With ongoing updates within the quarter on orders and deliveries, the quarterly earnings reports for Boeing aren’t typically chocked full of surprises. Heading into the results, the airplane manufacturer continued to maintain a massive backlog while improving the delivery rates.

The real questions during the quarter were debates on the valuation of the stock and the recent controversy over a bubble in wide-body airplane valuations. Investors watched Boeing collapse from a high of nearly $159 back in February to huge buying opportunity of $115 in the August market mini crash.

Boeing only won 166 net orders during the quarter in the commercial segment while delivering a record 199 airplanes, up from 197 in Q2. The net 33 airplane reduction in the backlog was almost immaterial with the total sitting at roughly 5,700. At a production rate of 200 airplanes per quarter, it will take Boeing over 7 years to eliminate the backlog.

The increased guidance for the year won’t solve any of the debates over bubbles in used airplanes. The company hinted at a reduction in the 777 production rates that would amount to a reduction of four airplanes a quarter. Boeing could easily make up for any production cuts in this area with increases in 737 or 787 production.

As the previous research highlighted, the unfilled orders are greatly skewed towards the 737 that sat at over 4,200 airplanes at the end of September. Even in the case of the 777, the majority of orders are for the 777X version not scheduled for first delivery until 2020.

As well, the full-year increased guidance doesn’t solve the worries over the recent low rates of new commercial orders. Ultimately though, the backlog remains almost too large for Boeing to garner new orders. Investors need to focus on the vast size of the backlog and the delivery rates.

Boeing: Large Backlog Trumps Fears

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