737MAX values fall, Boeing’s profits hit, headache of a delivery backlog

The value of a 737MAX has fallen by 5% to under $49m, bearing in mind the list price new is around $100m, not that anyone pays it.

This has a direct affect on leasing companies who buy the aircraft and hold them as assets while renting them out to airlines. They buy at a reasonable price, but the last thing they need is a fast depreciating asset.

If they asset depreciates – then the leasing companies have two problems. They don’t want to pay for the aircraft at such a high price, because the airlines won’t want to pay the lease charges when they too, know it’s not worth as much.

Leasing companies tend to order aircraft then find a customer to rent to. With 150 or so leasing companies out there the competition is stiff and margins thin. Airlines have a lot of choice and they do shop around.

Boeing has another issue. For every $25 of profit it declares, $6 is from the 737MAX. It’s deliveries are currently at zero and it’s still making them at around 46 per month, then parking them up.

Without income from the production the cost to manufacture is being born entirely by Boeing and its component manufacturers.

Yesterday United delayed service re-entry out until November. Indications that it will move into January 2020 are already lurking in the background.

When it is re-certified Boeing will then have some 100,000 hours of work re-fitting and reprogramming the ones it’s built plus the 350+ already in customer hands that will need to be prioritised.

It could have as many as 460 waiting for delivery. Many of them are spread about from the workers car park at Renton to any available space they were allowed to fly to for storage at desert airfields.

They all have to be flown back, refitted, prepped for delivery, flight tested, and handed over to their new owners. Provided there’s no contractual and pricing arguments as customers play hardball trying to get better deals.

It could take Boeing six months just to clear the backlog.

Meanwhile Boeing has lost its place as worlds biggest aircraft manufacturer to Airbus.