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Will 737 Order Cancellations Further Dent Boeing's Prospects?

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The Boeing Company’s (BA - Free Report) Commercial Airplanes segment continues to struggle amid the coronavirus pandemic. As we know, the demand for its 737 jets has reached bottom low over the past twelve months, following the consecutive crashes of two 737 Max 8 jets in March 2019, which eventually caused the temporary suspension of production in December.

The impacts of the COVID-19 pandemic on global air travel, which started to set its course around the middle of first-quarter 2020, dealt another major blow to the 737 program. The company witnessed a series of order cancellations for the 737 program over the course of time.

Recent Order Cancellations

Per a Reuters report, Boeing reported a total of 150 737 MAX aircraft cancellations in March, resulting from the worsened coronavirus situation. These cancellations were made by an Irish leasing company, named Avolon, and Brazil-based GOL airlines. Additionally, other prominent names that made cancellations involving the 737 MAX in the first quarter of 2020 were Gulf Air, Air Canda and Latam Airlines.

Per a CNBC report, the month of April was no better for Boeing as General Electric’s (GE - Free Report) aircraft leasing arm canceled 108 more orders for 737 Max jetliners, led by the pandemic’s devastating impacts on global air travel and its customers. As a result of such increasing order cancellations, Boeing did not take any new orders for its commercial jets in April. To make matters worse, these cancellations dented the company’s backlog, resulting in its order book to slip below the 5,000 mark.

What Lies Ahead?

During the first quarter, Boeing encountered a significant decline in aircraft deliveries as airline companies all over the world struggled from the effects of the coronavirus pandemic and thus, delayed delivery schedule. Since the duration of the outbreak still remains uncertain, air travel across the globe is unlikely to be operational any time soon. This can turn out to be disastrous for prominent jet makers like Boeing, Airbus SE (EADSY - Free Report) and others. In such circumstances, Boeing may witness a further rise in order cancellations alongside experiencing poor aircraft deliveries.

Moreover, due to the continuing decline in passenger bookings, airliners across the globe will be forced to reduce their existing capacities. Such an ongoing disruption in the aviation industry will most likely further dent Boeing’s commercial revenues in the upcoming quarters.

Price Movement

Boeing’s stock has plunged 63.5% in a year compared with the industry’s decline of 29.3%.

Zacks Rank & A Key Pick

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock in the same sector is Elbit Systems Ltd (ESLT - Free Report) , sporting a Zacks Rank #1.

Elbit Systems delivered a four-quarter earnings beat of 11.26%, on average. The Zacks Consensus Estimate for 2021 earnings indicates an annual improvement of 2.48%.

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