A boost for Boeing – what does it mean for bondholders?
Inzichten

A boost for Boeing – what does it mean for bondholders?

On 9 May Ryanair announced it had placed an order of up to 300 737-Max airplanes with Boeing. Before the deal Boeing had reported firm orders for more than 3,500 737-Max planes, as at the end of Q1.

It delivered fewer than 400 during the entirety of 2022. Following the announcement, Boeing bonds outperformed the investment grade corporate market by 5-6 basis points; its equity outperformed the S&P 500 by about 2.5%, and its nearest peer Airbus by about 2.25%, from 8 May until 11 May.

 

Are the market moves a rational reaction to the news? At this point in time, yes. Boeing already has an enormous backlog to deal with. It is struggling to keep up with demand and Ryanair’s order won’t convert to revenue for years to come.

 

The order, however, has multiple benefits for Boeing. Equity markets should see it as affirmation that Boeing is not losing all its market share to Airbus and its future certainly looks brighter than it seemed pre- announcement. Bond markets, meanwhile, should see this as an increase in the firm’s asset base – future revenue is an asset and could support liquidity if it is ever required. The orders will eventually convert to cash and enhance Boeing’s ability to reduce leverage. This is good news for bondholders.

 

Orders turn into revenue over time – in this case when the aircraft are delivered to the customer. Of course, 737-Max’s are complex machines, and the planes aren’t expected to land with Ryanair until 2027. That is some way off but does allow Boeing to plan production, which is important for any manufacturer, particularly one of large ticket items dependent on complex supply chains. Eventually, however, Boeing will report higher revenue because of this order.

 

Cash typically comes at the outset of the order and then in several lump sums throughout the order’s life. This is subject to negotiation and although the exact details are hard to accurately gauge, we can be sure it is cashflow positive for Boeing.

 

A place in the order book has value

 

When order books are as full as they are now, they become an asset for airline customers too. There is an ecosystem of airlines, airplane leasing companies, air-framers like Boeing, and the suppliers to the air-framers. As order books grow relative to production rates, it supports the planning of the air-framers and their suppliers. Scarcity relative to demand helps leasing companies and orders already made become more valuable to the customer as waiting times grow.

 

Think about when you order a car. If the car was available in two to three weeks, the order would have a particular value. If the car was so popular that it would only be received in two years’ time, one would expect that order to become more valuable to the customer. And if there were only two car companies and the wait for a new car was several years at each of those companies, that’s akin to the situation now for buyers of commercial airplanes. As a result, the likes of Ryanair will be very reluctant to give up their spot in the queue and have a real source of value in that order.

 

Positive accounting impact: it shouldn’t matter, but it probably will…

 

Lastly, there is an accounting benefit to Boeing if it increases the defined production lot. If Boeing expects to produce more planes, it will decrease the per-unit accounting cost and increase the reported margin. Financial markets do seem to react to accounting measures, regardless of how many times people are reminded that, at the end of the day, cash is king.

 

The large order from Ryanair was good news in many ways and, along with the quarterly commentary from an array of firms involved in engines, aviation electronics and the airframers like Boeing, it provides fundamental support for the commercial aviation sector. We continue to see select opportunities here. 

1 juni 2023
Gregory Turnbull Schwartz
Senior Analyst, Fixed Income
Share article
Share on linkedin
Share on email
Belangrijkste onderwerpen
Gerelateerde onderwerpen
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Belangrijkste onderwerpen
Gerelateerde onderwerpen

PDF

A boost for Boeing – what does it mean for bondholders?

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Gerelateerde inzichten

9 juli 2024

In Credit Weekly Snapshot – July 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
26 juni 2024

In Credit Weekly Snapshot – June 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
17 mei 2024

Catherine Joint

EM Corporate Research Analyst

Ukrainian corporates are making a comeback – but is it temporary?

Businesses are taking differing approaches to managing their debt, and as we approach the point where paused repayments will resume, markets are looking at the ability of companies to uphold them.
Read time - 3 min
15 juli 2024

Steven Bell

Chief Economist, EMEA

Where to next for UK Interest rates?

Market odds for the Bank of England to cut rates in August are better than 50:50. We are less optimistic.
Watch time - 4 min
11 juli 2024

Steven Bell

Chief Economist, EMEA

Life under Labour: what is the macro background for the new Government, their likely budget plans and the impact on the economy?

After inheriting a dire fiscal position how will Labour deliver economic growth? We take a closer look at their options and plans.
Read time - 4 min
10 juli 2024

Joe Horrocks-Taylor

Senior Associate, Analyst, Responsible Investment

Ebele Conroy

Investment Analyst, Global Research

De groene toekomst van transport

De transportsector is verantwoordelijk voor een aanzienlijk deel van de wereldwijde emissies, maar dat aandeel kan teruggedrongen worden door technologische innovaties, leidswijzigingen en gedragsveranderingen
Leestijd - 5 min
true
true

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Misschien vindt u dit ook interessant

Over ons

Miljoenen mensen over de hele wereld laten het beheer van hun geld aan Columbia Threadneedle Investments over. We beheren de beleggingen van particuliere beleggers, financieel adviseurs, vermogensbeheerders, verzekeringsmaatschappijen, pensioenfondsen en andere instellingen.

Fondskoersen en vergoedingen

Columbia Threadneedle Investments heeft een uitgebreid aanbod aan beleggingsfondsen, passend bij uiteenlopende doelstellingen.

Beleggingsbenadering

Uw succes staat bij Columbia Threadneedle hoog in het vaandel. De spil van onze ambitie om consequent successen te boeken voor onze cliënten is onze opvallend unieke beleggingsbenadering, waarbij vier beloften centraal staan.

Bevestig nog een paar gegevens over uzelf om toegang te krijgen tot uw voorkeurencentrum

*Verplichte velden

Er is iets mis gegaan, probeer het alstublieft nogmaals

Dank je. U kunt nu naar uw voorkeurencentrum gaan om te kiezen welke inzichten u per e-mail wilt ontvangen.

Ga naar uw voorkeurencentrum om te bekijken en bij te werken welke inzichten u van ons per e-mail ontvangt.