The unprecedented number of cancelled orders for Boeing’s 737 Max is driving an increase in jets parked at the company’s airfields that will need to be reconfigured before they are ready for a new buyer.

Boeing logged 516 net cancellations for the 737 Max in 2019 and 2020 to the end of October. Rival Airbus registered 1,010 net orders for the A320 jet family during the same period, according to data from consultancy Cirium. Among the Maxes parked at sites in Seattle and central Washington is an unknown but growing number of “white tails” — jets painted white because they are not promised to any airline.

The pandemic has hit both aerospace manufacturers hard, as their customers reel from collapse in demand for air travel. But Boeing is also losing orders from airlines and lessors who, still without a Max after 12 months, are cancelling their contracts without penalty. So far in 2020, Airbus A320 has 275 net orders, while Boeing’s 737 Max has 443 net cancellations.

Another, stricter accounting measure paints an even worse picture for Boeing. The company has 1,020 net cancellations this year, if the figure counts not just voided contracts but also deals with customers who are so financially weak they may not take delivery.

The high number of cancellations is noteworthy, said Canaccord Genuity analyst Ken Herbert.

Chart showing orders and cancellations of Boeing 737 Max  and Airbus A320 planes

“I’m sure Boeing is pretty much doing anything that the airline would want to do to maintain the order,” he said. “It’s not as if Airbus is facing a similar situation with the A320. This is a Boeing-specific, versus a broader industry, phenomenon.”

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The US Federal Aviation Administration next week is expected to lift the flight ban on the Max that has lasted 18 months. Aviation regulators around the world grounded the plane in March 2019 after the second of two crashes that killed a combined 346 people.

A flight control system on the plane, meant to help pilots avoid a stall, instead could repeatedly push down the nose of a plane based on input from a single sensor. Yet Boeing omitted mention of the software from the flight crew manual and fought successfully to avoid a simulator training requirement for pilots, according to a damning report released two months ago by a US Congressional committee. Its efforts went unchecked by the FAA, and “the combination of these problems doomed the Lion Air and Ethiopian Airlines flights”.

The company has since changed the flight control system so that it receives input from two sensors and can no longer be activated repeatedly. It also reversed course and recommended simulator training for pilots.

American Airlines said it will return the plane to its schedules in late December, with other US carriers saying they will follow next year.

With the grounding lifted, Boeing can resume deliveries of the Max, bringing in much-needed cash. The Chicago company reported a $5.1bn free cash outflow in the third quarter, compared to a $2.9bn outflow for the same period last year. Executives said the company will draw down its inventory of 450 planes by roughly half in the next year.

Charts showing deliveries of the Boeing 737 Max and Airbus A320

How many planes have buyers is “as fluid as anything you could imagine” chief executive David Calhoun told investors in October, but “probably more than half are, in fact, planned for customers”.

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To forestall more cancellations, Boeing sales representatives can offer sweeteners from the company’s range of services for training, spare parts or data and analytics. They also may have to brace themselves and discount the plane for sale.

“It’s all fundamentally cash out of Boeing’s pocket either now or later, but they do what they can to make it later,” Mr Herbert said.

The goal is to avoid losing an order and being forced to rework the plane for a new buyer. It costs time and money to rearrange configurations for seats, lavatories and galleys — all of which have ramifications for the plane’s weight and balance — or rewiring it for different in-flight entertainment or connectivity options.

Charts showing Boeing 737 Max cancellations by customer

Mr Herbert said adding new orders to Boeing’s backlog of 3,400 Maxes will improve sentiment around the stock. “If nothing else it will be symbolic, to say, ‘OK this plane has a future, and here’s somebody who’s willing to write a cheque for it.’”

Via Financial Times