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Boeing's 737 MAX 9 Wins FAA Certification, but It's Already Dead in the Water

Adam Levine-Weinberg, The Motley Fool

Boeing's (NYSE: BA) 737 MAX 9 -- the second variant of its upgraded 737 MAX family of single-aisle planes -- is finally ready for action. Last Friday, the aerospace giant announced that the FAA had issued an amended type certificate for the MAX 9. This will allow Boeing to begin deliveries to customers, including rapidly rising Southeast Asian carrier Lion Air and United Continental (NYSE: UAL).

However, the 737 MAX 9 hasn't sold very well. Further, Boeing launched a slightly larger model last year (the 737 MAX 10) to better compete with the Airbus (NASDAQOTH: EADSY) A321neo. The 737 MAX 9 now fills a tiny niche between the 737 MAX 8 and 737 MAX 10, which will make it very difficult to gain additional orders.

A Boeing 737 MAX 9 flying over clouds

Boeing's 737 MAX 9 was certified by the FAA last week. Image source: Boeing.

Boeing's 737 mistake

Boeing's outgoing generation of 737 jets came in four basic sizes: the 737-600, 737-700, 737-800, and 737-900. The smallest model (the -600) sold very poorly, with fewer than 100 orders. By contrast, the 737-800 and its variants accounted for more than 5,000 orders -- roughly three-quarters of the total. The 737-700 and 737-900 size classes both sold in respectable numbers as well, with more than 1,200 orders for the former (including business jets) and nearly 600 orders for the latter.

Not surprisingly, when Boeing designed an upgrade program for the 737, it dropped the smallest model. However, it left the other three model sizes unchanged, which proved to be a mistake.

The 737 MAX 7 attracted little interest from airlines, as its relatively small size means unit costs are higher. Boeing eventually changed the MAX 7's specifications to add 12 more seats, while increasing its commonalities with the 737 MAX 8 to reduce development costs.

Demand for the 737 MAX 9 was a little better, but still underwhelming. Boeing doesn't provide an official breakdown of its 737 MAX orders by variant, but one third-party analysis pegged the number of MAX 9 orders at approximately 410 as of a year ago. For comparison, Airbus currently has 1,920 orders for its competing (but somewhat larger) A321neo.

Stuck in the middle

At last year's Paris Air Show, Boeing launched the 737 MAX 10, a model that can fit 12 more seats than the MAX 9. The MAX 10 has roughly the same capacity as Airbus' A321neo, and will likely have similar unit costs.

A rendering of a Boeing 737 MAX 10 in flight

The 737 MAX 10 has superseded the MAX 9 in Boeing's product lineup. Image source: Boeing.

Not surprisingly, airlines and aircraft leasing companies responded much more positively to the 737 MAX 10 than to the MAX 9. Boeing garnered 361 orders and commitments for the 737 MAX 10 in the span of a week during the air show.

In theory, it might have made sense for Boeing to scrap the 737 MAX 9 in favor of the MAX 10, just as it had abandoned the original 737 MAX 7 concept. Unfortunately, by the time it made the decision to go ahead with the 737 MAX 10, the MAX 9 was less than a year away from entering service. In other words, it was too late to completely change course.

This has left the MAX 9 in a no-man's land where it isn't likely to get more orders. (In fact, the size gap between the 737 MAX 8 and 737 MAX 10 is less than the gap between the A320neo and A321neo.) Most airlines prefer the 737 MAX 8, which hits a sweet spot in terms of the trade-offs between size, unit costs, and performance. Meanwhile, airlines that want to minimize unit costs will move all the way up to the 737 MAX 10, bypassing the MAX 9.

Orders melting away

The tough outlook for the 737 MAX 9 can be seen from the evolution of United Continental's fleet plan. Back in 2012, the carrier ordered 100 737 MAX 9s, making it one of the two primary customers for that variant (along with Indonesia's Lion Air).

However, United converted 39 of those orders to the 737 MAX 10 last June, along with another 61 737 MAX orders that didn't previously have a variant specified. United Airlines will still add the 737 MAX 9 to its fleet starting this year, but that's probably just because the 737 MAX 10 won't be available until 2020. Going forward, the MAX 8 and MAX 10 look like better fits for the carrier's needs.

Lion Air has also ordered some 737 MAX 10s. While it did so as a new order rather than a conversion, this suggests that it won't have as much need for the 737 MAX 9 in its long-term fleet plan as previously expected.

Many other Boeing customers converted smaller numbers of existing 737 orders to the MAX 10 last year, hollowing out the 737 MAX 9 backlog even further. Once 737 MAX 10 production ramps up in the next few years, the 737 MAX 9 will have lost most of its (limited) appeal. As a result, its production run could come to a premature end within the next five years or so.

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Adam Levine-Weinberg has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.