By Andrew Tangel
Boeing Co. and Airbus SE are making planes that airlines aren't
collecting, straining their finances as the coronavirus pandemic
wreaks havoc on travel and the aerospace industry.
Airlines in many cases say they don't want the aircraft for now,
because they are unable to fill them profitably during a historic
plunge in demand for flying. Travel restrictions are also hindering
employees of some airlines from getting to the U.S. and Europe to
pick up planes from factories.
The result: finished airplanes with nowhere to fly, and less
cash for Boeing, Airbus and their suppliers as they slash
production and payrolls. Customers generally pay more than half the
purchase price when they receive aircraft. Boeing delivered 20
aircraft in the second quarter, down from 90 in that period last
year. It was the lowest quarterly total since 1963, the early part
of the jet age, according to an analysis of Boeing delivery
data.
Airbus reported delivering 74 jets in the second quarter, down
from 227 in the same period a year before. Among the European plane
maker's undelivered jets are four ordered by Delta Air Lines Inc.,
according to consulting firm Ascend by Cirium. Delta has said it
won't take delivery of new jets this year.
"Clearly, we're in a situation where we don't need any
aircraft," Delta Chief Executive Ed Bastian said on a call earlier
this month.
The drop in deliveries has added financial stress at the plane
makers, which analysts expect to report burning through billions of
dollars in cash during the second quarter. The fallout is expected
to extend to suppliers such as aircraft-engine maker General
Electric Co., which like the plane makers receive much of their
payment when a plane is delivered.
Boeing, Airbus and GE are slated to report their second-quarter
earnings this week.
A big reason for the pileup at Boeing is the grounding of the
737 MAX since March 2019. More than 420 remain undelivered after
regulators banned the MAX from carrying passengers following two
fatal crashes that took a total of 346 lives. MAX production, which
Boeing halted for more than four months starting in January, is set
to reach 31 a month next year, about half the rate before its
grounding. The Federal Aviation Administration isn't likely to
grant the MAX approval to resume commercial service until late
October or early November, according to U.S. government and
industry officials.
A slowdown in deliveries of wide-body jets, which are bigger
than the MAX, has left Boeing stuck with those aircraft too. Demand
for those planes, which are often used in international travel, is
expected to recover more slowly than that for smaller planes used
for short-haul trips. An estimated 35 wide-body 787 Dreamliner, 777
and 747 jets were awaiting delivery in early July, according to
Ascend by Cirium.
Boeing had been producing 14 Dreamliners and five 777s a month
before saying in April it would cut production rates. As parking
near its factories fills up, Boeing has begun storing some jets at
an airfield in Victorville, Calif., a person briefed on the
company's plans said.
Boeing Chief Financial Officer Greg Smith said earlier this
month that the company is negotiating delivery timing with
customers that will help determine production rates. Such
negotiations can result in airlines agreeing to purchase other
aircraft or services in later years. Aircraft-purchase contracts
generally allow buyers to walk away without financial penalty if
manufacturer delays postpone deliveries for a year or more. Boeing
already has slashed production and moved to cut 10% of its
160,000-employee global workforce in response to plunging
air-travel demand.
Airbus has said it plans to cut 15,000 jobs and has lowered
production by about one-third. Airbus had about 130 jets awaiting
delivery at the end of June, a spokesman said. Airbus customers in
some cases have performed virtual checks of aircraft or picked up
planes from different locations as a result of quarantine
requirements, the spokesman said.
"Comparisons with previous years are meaningless when the
Covid-19 pandemic is affecting the world economy in an
unprecedented manner," the Airbus spokesman said.
Some Boeing and Airbus customers also are canceling orders
outright. Norwegian Air Shuttle ASA said in June that it was
canceling outstanding orders with Boeing for five Dreamliners and
92 MAXs. Four finished Dreamliners that the discount European
carrier had been slated to operate are parked at Charleston
International Airport in South Carolina and Paine Field in
Washington state, according to Ascend by Cirium and
aviation-tracking service Flightradar24. Norwegian declined to
comment.
Air Lease Corp. has two Dreamliners awaiting collection in South
Carolina by its client, China Southern Airlines Co., according to
Ascend by Cirium and Flightradar24. Their delivery is delayed
because of travel restrictions, Air Lease CEO John Plueger said.
Employers don't want staff getting "hung up for weeks and weeks" in
quarantine, he said.
Some customers are waiting months rather than weeks to accept
new jets, according to Ascend by Cirium. United Parcel Service Inc.
has had a Boeing 747 cargo plane awaiting delivery in Everett,
Wash., since it first flew in February, according to the consulting
firm. Former Boeing executives said such a long delay was unusual.
A UPS spokesman said the freight carrier would take delivery of the
aircraft.
"Due to the Covid-19 pandemic, we've worked with Boeing on
adjustments to delivery schedules, but our overall plans remain
unchanged," the spokesman said.
Carriers remain in talks over deliveries of airplanes slated for
production in coming years.
"Where we go from here needs to be negotiated, period,"
Southwest Airlines Co. CEO Gary Kelly said on a call with analysts
and reporters Thursday.
United Airlines Holdings Inc. said last week it had struck a
deal with Boeing to take no new aircraft in 2022.
American Airlines Group Inc. is discussing when to accept MAX
jets on order in coming years, Chief Financial Officer Derek Kerr
said Thursday.
American had threatened to cancel 17 MAXs due for delivery this
year but said it would take them after it secured financing for
nearly all the jets.
--Benjamin Katz and Austen Hufford contributed to this
article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
July 26, 2020 11:40 ET (15:40 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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