BOEING: Hard Cancellations

08/24/12 10:07AM EDT

One of the worst things that can affect an airplane manufacturer like EADS' Airbus (EAD) or Boeing (BA) are cancellations from a major airline. In this case, Australian airline operator Qantas cancelled a recent order from Boeing for 35 787 Dreamliner aircraft. Qantas is a rather small airline when compared with the US; the Australian market for commercial aircraft is about 1/10th the size of the US’s, which is only ~15% itself. Still, cancellations are not something manufacturers want experience, especially when rolling out new aircraft (in Boeing's case, the 787).

Boeing is currently in the midst of a long up cycle in commercial Aerospace, with 7 years trailing revenue in backlog.  The company also has a major product cycle in the 787. In the highly consolidated airspace industry, cancellations are a major  problem and in a global macro environment that’s experiencing growth slowing, this sort of thing does not bode well for the BAs and EADs of the world.

Looking at the chart below, one can see that orders and deliveries are trending upward after a decline that occurred during the financial crisis. This Qantas cancellation may be a one off situation rather than an indication of moves other airlines may make going forward.

BOEING: Hard Cancellations  - BA cancellations

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