By the Leeham News Team
But Boeing has been through long, slow and painful periods before.
Investors appear optimistic. The stock price has been rising since lows hit immediately after and throughout the pandemic.
The stock price is far off its high of $440 on March 1, 2019. March 1 was after the October 2018 Lion Air 737 MAX accident but nine days before the March 10, 2019, Ethiopian Airlines MAX crash. The price closed yesterday at $231, abut equal to where it was a year ago today.
Tuesday’s stock price close is also higher than at any time under the 10-year leadership of former CEO Jim McNerney. McNerney never came close to hitting the $200 target price Wall Street analysts say it was the goal set by the Board of Directors.
Dennis Muilenburg succeeded McNerney in 2015. The price then was hovering around $150. The 737 MAX entered service in May 2017. By June 30, 2017, the price hit $198. From there, it was on a steady increase. Even the Lion Air crash of a new 737 MAX didn’t interrupt the ascendency, despite a sell-off that lasted a few months.
Through the MAX grounding, the stock continued to trade above $300, sometimes well above it. Only when the pandemic hit did the stock take a deep dive.
Since December, save for a short dip, the stock is trading above $200. With Boeing delivering new 737s again, albeit at a low rate, and progress in combatting the pandemic, Wall Street seems optimistic. Clearing an inventory of 450 737s may take until early 2023.
Whether this optimism is overdone is a matter of debate in some circles.
Boeing hasn’t delivered a 787 since October. Production and quality issues halted deliveries as inspections of new-build airplanes got underway. In-service 787s continue to fly.
Officials hope to resume delivery this month, although there is some indication resumption may not happen until next month.
But the pandemic crushed demand for widebody airplanes, the 787 included. Boeing consolidated production from two lines to one. The Everett line was closed. All production shifted to Charleston. Production was reduced from a high of 14/mo to 5/mo. A few Wall Street analysts believe this rate could come down to 4/mo. Boeing may have a 787 inventory of nearly 100 by the time deliveries resume. Boeing previously said it expects to clear this inventory by year-end, but skeptics forecast next year.
How significant and how widespread the fixes to the 787 are isn’t clear. Some suggest the entire in-service fleet must be inspected and fixed. The cost of doing so isn’t known.
Boeing took a $6.5bn forward loss in 2020 for the 777X program. The company warned in its federal filings with the Securities and Exchange Commission a forward loss on the 787 might be required due to lower production rates.
LNA’s Vincent Valery sees a multi-billion dollar forward loss is coming for the 787. The 2020 annual shareholders meeting is April 20. The first quarter earnings call typically is the last Wednesday of April or April 28 this year. If a forward loss is coming, it could be announced in connection with either event.
Officials said the first financial priority is to repair the balance sheet and repay billions of dollars in debt incurred to get through the pandemic. Stock repurchases and dividend resumption appear to be years away.
Boeing and McDonnell Douglas merged in December 1997. With the McDonnell family and former MDC CEO Harry Stonecipher becoming the largest Boeing shareholders, shareholder value became the top priority at Boeing.
Since 1998, Boeing repurchased nearly 593 million shares at the cost of $63.5bn—the equivalent of 4-6 new commercial airplane programs, excluding dividends paid.
Boeing faces the need to develop a new airplane to replace the slow-selling 737-9 and 737-10 to compete with the Airbus A321XLR and fill the mid-market gap above. There is also a need for a new airplane in the 125-150 seat sector where Airbus has the modern A220 family. The 737-7 MAX sold worse than the MAX 9 and MAX 10.
Boeing’s cash flow will be low for the next two or three years. But by 2023 or 2024, Boeing needs a new airplane, or it faces falling further behind Airbus for the rest of this decade and beyond.