To The Moon

After a sizable chunk of its commercial jet orders melted away in 2019 and 2020, Boeing (NYSE:BA) has started to rebuild its backlog in 2021. The plane maker has recorded positive net orders for six consecutive months. It will probably extend that streak to seven months when it reports its August order activity next week.

That said, Boeing's backlog still pales in comparison to that of Airbus (OTC:EADSY), because of the A320neo family's advantages over the 737 MAX. This week, Airbus won an important order from British leisure airline Jet2.com, a longtime Boeing customer. This defection highlights how the U.S. aerospace giant isn't out of the woods yet.

Market share shift

In recent years, Airbus has consistently maintained a backlog advantage over Boeing, specifically in the narrow-body segment. However, the gap widened when Airbus bought a controlling stake in the CSeries aircraft program -- now known as the A220 -- in 2018, and it expanded dramatically after the Boeing 737 MAX was grounded in March 2019.

As of the end of 2015, Boeing had 4,392 firm orders for its 737 family, whereas Airbus had 5,535 firm orders for its competing A320 family. That gave Airbus a 56% share of the two top aircraft manufacturers' narrow-body orders, a solid advantage but hardly a dominant position. Two years later, Airbus' share had crept up to 57%.

But by the end of July 2021, Boeing's narrow-body backlog had shrunk to just 3,314 firm orders, largely because a slew of 737 MAX orders had disappeared over the past two years. Meanwhile, Airbus ended the month with 6,100 firm orders for narrow-bodies, with the A320neo family accounting for more than 90% of that backlog. This puts Airbus' share of the two rivals' narrow-body orders at 65%.

Airbus just flipped another Boeing customer

For most of its history, Jet2.com has exclusively operated Boeing jets. Today, it has about 90 aircraft in its fleet, nearly all Boeing 737s.

However, Jet2 experimented with leasing an A321 last year. The leisure-focused airline apparently liked what it saw. On Tuesday, Jet2 and Airbus announced that the carrier had placed a firm order for 36 A321neos, with options for 24 more. This confirmed earlier Reuters reports that Jet2 was on the verge of switching to Airbus. Jet2 said that the planes will arrive over a five-year period running through 2028.

Airbus probably offered big discounts to pry Jet2 away from Boeing. Still, the A321neo's superior capabilities relative to the 737 MAX 9 and 737 MAX 10 gave it the opening to win this business. Jet2 will configure its A321neos with 232 seats, slightly more than the 737 MAX 10's maximum capacity of 230. Furthermore, the A321neo can operate from shorter runways than a 737 MAX 9 or 737 MAX 10, giving Jet2 greater operational flexibility.

Boeing's 737 MAX problem hasn't gone away

Jet2's decision to replace dozens of Boeing jets with A321neos shows that Airbus continues to have the upper hand within this rivalry.

Of course, Boeing still has a respectable backlog for the 737 MAX, and it continues to win new orders from a handful of key customers. On the other hand, Boeing would need to significantly increase its order intake to support a sustainable return to its peak production rates. Moreover, leaning heavily on a few customers comes with big drawbacks. Most notably, big customers tend to negotiate the biggest discounts, weighing on margins.

Airbus won't make things easy for Boeing. The European aircraft manufacturer plans to ramp up A320neo-family output to record levels by mid-2023, with further production increases through 2025. This will open up extra delivery slots, preventing Boeing from winning orders by default as a result of Airbus' larger backlog.

The 737 family has been a big cash cow for Boeing in the past. A huge global oversupply in the wide-body market will make the 737 MAX even more important in the near term. Unfortunately, Boeing will likely have to build the 737 MAX at a slower rate and with lower margins over the next decade than investors had expected just a few years ago. That will keep Boeing stock grounded for a while.