Boeing Absorbs New Blow With Avolon Dumping $8 Billion Order

(Bloomberg) -- Boeing Co.’s beleaguered 737 Max program suffered one of its biggest cancellations as plane-leasing firm Avolon Holdings Ltd. scrapped an $8 billion deal for 75 jets as the Covid-19 pandemic crushes travel demand.

Avolon, one of the top 20 customers for a model grounded more than a year after two fatal crashes, will also defer delivery of 25 Boeing and Airbus SE narrow-bodies as it cuts the order book by 40%, the lessor said in a statement Friday.

The cancellation compounds the crisis surrounding the Max, the return of which has been further clouded by the coronavirus outbreak. The move comes a day after Boeing said it would offer exit packages to thousands of workers as the pandemic all but obliterates purchases of new planes. Avolon said the decision was taken to better align with market conditions as the jets, with an $8 billion value at list prices, hadn’t been placed. Customers typically negotiate discounts.

“I do expect this to be the start of loads of deferrals and cancellations,” said Nick Cunningham, an analyst at Agency Partners in London. “We could be staring at the worst recession ever, and I suspect most airlines don’t want to be thinking about adding any new capacity.”

Boeing rose 2.3% to $126.15 at 11:10 a.m. in New York. The stock had declined 62% this year through Thursday, the biggest drop on the Dow Jones Industrial Average.

“As we have produced fewer Max airplanes than planned, we have implemented these adjustments to regain flexibility in managing the more than 4,300 unfilled 737 Max orders,” Boeing said by email. “This is also the right step to align to the realities of the marketplace.”

‘New Reality’

Chief Executive Officer Dave Calhoun has said the company will face a “new reality” in a jetliner market that will take years to recover when the world emerges from the outbreak’s effects.

More than 80% of Avolon’s customers have asked for relief, including deferrals of aircraft rent payments, with average lease payments being deferred three months, it said in the statement. Avolon is also canceling orders for four Airbus A330neo wide-body jets.

The European planemaker is mulling production cuts for its A320 series, the main rival to the Max, people familiar with the situation have said.

Airbus Weighs Cut to Narrow-Body Output as Virus Idles Fleets

“I suspect that the Max is easier to cancel, and get back your deposit, as it’s been grounded for almost 13 months now,” Cunningham said.

Boeing, meanwhile, is particularly exposed because traffic has slumped most on long-haul routes served by wide-body jets -- the only ones it has been delivering since the Max was grounded.

Among leasing firms, Avolon is in an especially tough position as it’s part-owned by China’s debt-laden HNA Group Co., a once-sprawling conglomerate now under state control after being battered by the coronavirus outbreak.

Avolon CEO Dómhnal Slattery said the moves will reduce the Dublin-based company’s aircraft commitments to 165 from 284 over the next three years. The company has $5 billion in cash and undrawn secured warehouse facilities, he said.

The leasing company still has more than 190 A320-series jets on order, according to Airbus data.

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