Falling air traffic coupled with the grounding of the Boeing B737 MAX has potentially threatened Boeing's order backlog, over half of which is concentrated among only a handful of customers.
Market participants often cite the aerospace manufacturer's backlog as a reason why the long-term demand outlook for metals such as aluminum, titanium, and minor metals will rebound, despite the near-term production and delivery headwinds.
Boeing has shuttered production at multiple locations in light of the lengthy fallout from deadly B737 MAX crashes and the drop in air traffic from Covid-19 containment measures.
As a result, demand for metals used in manufacturing new aircraft and replacement parts has dropped.
Unfulfilled orders of the B737 MAX represent 80pc of the total undelivered aircraft across all commercial models. Based on the average model cost, unfulfilled B737 MAX orders represent roughly $531bn in potential revenue.
Boeing currently has 4,407 undelivered B737 aircraft orders and a 4,079 B737 order backlog. The backlog includes cancelled orders and orders which Boeing anticipates to be cancelled.
National, regional, and charter airlines constitute 69pc of unfulfilled B737 orders. US-based Southwest Airlines has the highest number of orders yet to be delivered at 249, followed by flydubai and India-based Lion Air, both with 237 undelivered aircraft.
Another group, which consists of leasing companies, currently represent 21pc of the B737 unfulfilled orders, including Boeing subsidiary Boeing Capital Corporation. Boeing forecasts that about 70pc of lessor financing would be sourced through bank debt and capital markets. The company also expected unsecured borrowing, debt not backed by collateral, to represent most of the financing for these companies' aircraft purchases over the same period.
In a third category, Boeing has 19pc of its unfulfilled B737 orders with unidentified customers.
More than half, about 56pc, of the unfulfilled 737 orders, are concentrated among these three customer types. With such a highly concentrated customer base, unfolding market conditions might pose a threat to a significant portion of Boeing's order book.
Low air passenger traffic might hit more aircraft leasing companies' customers, prompting defaults on rent agreements. In addition, resistance from lenders could squeeze leasing companies' ability to pay on MAX contracts. Aircraft leasing company, Avalon cancelled 75 MAX orders in early April for delivery through 2023 and rescheduled a further 16 to 2024 and later.
Meanwhile, Southwest has moved 140 of its aircraft, 34 of which were B737 MAXs, into long-term storage, reflecting the drop in passenger traffic. The airline also highlighted its flexibility to further delay deliveries and orders.
Boeing does not disclose unidentified customers and thus its unclear as to what their creditworthiness and concentration looks like.
