Boeing 737 MAX Gets a $1.2 Billion Vote of Confidence at the Dubai Air Show
Airbus took a commanding lead ahead of Boeing for order announcements in the first couple days of the Dubai Airshow. More significant, though, Boeing landed 30 firm orders for its embattled 737 MAX, which remains grounded around the globe while legions of regulators scrutinize the airplane’s safety.
Boeing booked 10 orders for the 737 MAX 8 from SunExpress, a subsidiary of Lufthansa and Turkish Airlines, and 20 orders, evenly split between the 737 MAX 7 and the larger MAX 10, from an unnamed airline customer. Kazakhstan’s low-cost carrier, Air Astana, said it intends to order 30 of the single-aisle airplane at a later date.
The Dubai Airshow orders signal that airlines remain confident in the airplane’s fundamental safety and profitability.
SunExpress’s chief executive said the airline, which is a loyal Boeing customer, remains committed to transitioning to the 737 MAX for its single-aisle fleet. It already has orders for 32.
“We have full confidence that Boeing will deliver us a safe, reliable, and efficient aircraft,” SunExpress CEO Jens Bischof said in a press release put out by the Chicago-based airplane maker. “However, it goes without saying that this requires the undisputed airworthiness of the model, granted by all relevant authorities.”
SunExpress did not reply to a request for comment.
The order is valued at $1.2 billion at list price. However, Boeing and rival Airbus almost always slash the sticker price in their bareknuckle fight over the single-aisle aircraft market.
Discounts usually were as much as 60% before the grounding, analyst Scott Hamilton, who runs the aerospace consulting firm Leeham Co., tells Fortune. “I would guess (Boeing agreed to) maybe another 5% or 10%, perhaps even more. This could easily be one of those deals you can’t refuse.”
Once the plane is back in service, it likely will be only a few weeks before orders return, Hamilton said.
Boeing probably could have ended the MAX order drought months ago if it had been willing to further cut the price, Teal Group vice president Richard Aboulafia tells Fortune.
However, given how slim the margin already is on narrowbody airplanes, Boeing is limited in price cuts, before it is selling at a loss. Such a move would also undermine the company’s future pricing power, he says.
“There are many ways to cover up price discounts,” Aboulafia says.
Some ways more or less mirror sweeteners offered by car salesmen, such as trade backs and throwing in additional services.
Boeing’s 737 MAX order backlog so far has weathered the grounding, with only a trickle of orders being swapped for different aircraft types or cancelled. The company has more than 4,500 unfilled orders for the MAX. In all, customers have placed more than 5,000 orders, making it the fastest selling airplane in Boeing history.
Despite that superlative, the 737 MAX runs a distant second to its competitor, Airbus’s A320neo, which had collected 7,058 firm orders as of the end of October. The European airplane maker added more than 150 orders to the A320’s backlog. Last month, the A320 pushed past the 737 to claim the title of most popular jetliner in history. Since its launch in the 1980s, the A320 has bagged 15,193 orders through the end of October versus 15,136 orders for Boeing’s 737, which was launched in the 1960s.
Boeing has struggled to land orders for the MAX since regulators grounded the plane in March, following the second fatal crash in five months. Together the crashes claimed 346 lives. In June, IAG, one of the world’s biggest airplane owners, said it intends to purchase 200 737 MAXes. However, intentions cannot be booked on Boeing’s balance sheet.
Since then, Boeing has repeatedly pushed back when it expects the MAX to start flying passengers again. Currently, regulators are not expected to approve the plane for passenger service before early 2020. It remains to be seen whether many flyers will avoid the MAX once it returns to service.
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