Nov. 25, 2019, © Leeham News: Boeing still doesn’t have a timeline for recertification of the 737 MAX and the Federal Aviation Administration isn’t going to be rushed, but aerospace analysts are increasingly looking beyond the grounding at a normalized Boeing.
It will be well into 2021 before Boeing clears the inventory of MAXes.
Nevertheless, analysts see the proverbial light at the end of the tunnel, hoping that it isn’t an oncoming train.
The orders and commitments at the Dubai Air Show for 60 MAXes are signals that the MAX crisis may be coming to an end.
The low-key roll-out last week of the 737-10 MAX—the largest and last of the long line of 737s—would have been a big event were it not for the crisis. No media was invited; only Boeing employees were present, understandable under the circumstances.
First delivery was originally planned for 2020. It’s unclear what the impact of the MAX crisis will be on this timeline.
A recommendation by a manager of Transport Canada that MCAS should be removed before the MAX is returned to service may throw a kink into the process. Transport Canada hasn’t acted on the recommendation and it carries no official weight with the FAA. At least one official within the FAA agrees.
The story was first reported by The New York Times.
With the resumption of MAX deliveries in 2020, Boeing’s cash flow—which is the key measure by which aerospace analysts look at the company—will resume with it.
Bernstein Research, always one of the most favorable toward Boeing, wrote in a note today:
After management discussions, Dubai orders, and more MAX detail, we keep our Outperform rating and $433 target price. We lower our 2020 FCF to $26.39 (from $26.99) and raise our 2021 FCF to $35.42 (from $34.99). Changes are mainly due to slightly later MAX deliveries.
Positive factors affecting 2020 FCF include: Cash on delivery for stored MAX’s and planned ramp to 57/month by the end of 2020 and likely more 2020 orders than in 2019. Our model slightly moves back MAX deliveries. Negative factors for 2020 FCF include: Lack of progress payments in 2020 for airplanes that already received them in 2019, but will not be delivered until 2020-21, rate cut on the 787 and delay in 777X deliveries. These changes are already in our model, except those tied to our slower 737MAX delivery outlook.
Emphasis is in Bernstein’s note.
Bernstein assumes the stored MAXes will be delivered at a rate of 25/mo, beginning initially with 10 next month (which may be optimistic). At this rate, Bernstein sees the final stored delivery by September 2021. Any delay in FAA authority to resume deliveries, of course, pushes this timeline to the right.
Bernstein notes the stored delivery rates may vary, perhaps significantly, depending on when customers want to take delivery due to seasonality and other factors.
Interestingly, Bernstein sees the production rate returning to 52/mo by July 2020 and increasing to 57 by October 2020 but delivery rate of newly produced airplanes lagging throughout the remainder of 2020 and all of 2021.
Melius forecasts free cash flow of $26.70 per share in 2021.
Melius sees a stock target price of $520 per share in 2022, or 16 times free cash flow.