Al Root
The biennial Farnborough Airshow wrapped up on Friday, and for new jet orders, it was a dud. But Boeing, Airbus, and the entire aerospace industry have a much bigger job to do now than selling planes.
Airshows in Paris and Farnborough, located outside of London, are chances for the aerospace industry to catch up and do business. More than 10,000 orders for new Boeing and Airbus jets have been announced at both shows since the turn of the century.
This year wasn't a big one for orders. Firm orders for Boeing and Airbus totaled 242 jets, according to Vertical Research Partners. That makes the 2024 show the worst for new orders since 2006. (There was no show in 2020, amid the COVID-19 pandemic.)
That sounds alarming, but shares of Boeing and Airbus barely budged. Through midday trading on Friday, Boeing stock was up about 4% for the week. Airbus stock was down about 1% while the S&P 500 and Dow Jones Industrial Average were down about 1% and up 1%, respectively.
Boeing stock outperformed, but shares were still down about 28% year to date, more than 40 percentage points behind the S&P 500.
The 2024 airshow just wasn't about orders. Boeing and Airbus have almost 15,000 undelivered airplanes in their backlogs. That is more than 11 years of work based on the number of planes the pair is expected to deliver in 2024. Wall Street expects just under 500 from Boeing and almost 800 from Airbus, according to FactSet.
Boeing and Airbus need to ramp up production, but that hasn't been easy.
"Airshow commentary has focused on the aerospace OEM supply chain issues, " wrote Vertical Research Partners analyst Rob Stallard in a Friday report. (OEM is short for original equipment manufacturer. In this case, that's Boeing and Airbus.)
Supply-chain problems have been with the industry since the pandemic. The industry has many small suppliers with deep engineering experience, and Boeing and Airbus can't just buy rivets from an unqualified supplier if a main supplier runs short. Every part of a plane is carefully controlled and qualified for use.
Many suppliers are struggling because they experienced significant employee turnover during the pandemic -- expertise walked out the door.
The CEO of electrical components supplier TE Connectivity, Terrence Curtin, said that in some business segments, his company is supplying customers at or better than pre-Covid levels -- but that isn't true yet in the aerospace supply chain. Orders are still coming in and TE is still trying to catch up.
Lockheed Martin CFO Jay Malave said on-time delivery of suppliers is improving and shortages are coming down, but things aren't back to normal.
"There are still pockets of pressures...there are still challenges that remain," he said.
Fixing the problem won't be easy. Larry Culp, CEO of engine supplier GE Aerospace, said the problem isn't caused by just two or three things.
"What we need to do as an industry is problem solve," Culp said.
It will take a lot of work up and down the supply chain to get plane production back to, and beyond, pre-pandemic levels. Boeing and Airbus delivered some 1,600 planes in 2018, a record. Wall Street doesn't see that level eclipsed until 2026.
Airbus stock dropped almost 10% on June 25 after the company cut its 2024 delivery guidance due to supply chain issues. Shares have drifted lower since then.
There is less of a risk for major parts suppliers. GE Aerospace and its peers make more money servicing the existing fleet than selling new equipment. Still, more planes need to be delivered to keep everyone's earnings growing in the long run.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 26, 2024 13:13 ET (17:13 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments