Insights

1 Green Flag For Boeing in 2022, and 1 Red Flag

Given that Boeing’s (NYSE: BA) stock is down slightly more than 45% over the last year — the S&P 500 has been flat over the same period — it makes sense to start with the red flag and finish with the green flag. Unfortunately, there are a lot of issues keeping the red flag flying here. However, there are plenty of reasons to consider Boeing as an investment. Here’s the lowdown.
A red flag for Boeing
In a nutshell, it’s execution. Boeing’s recent history contains many operational mishaps and cost overruns that have sapped investor confidence. However, before getting into the problems with its commercial airplanes — they span across all its significant airplanes — investors need to grapple with the defense, space, and security segment issues. 
Image source: Getty Images.

The company’s long-troubled KC-46 tanker (aerial refueling and military transport aircraft) was initially intended to go into full-rate production in 2017, but that date is now delayed until at least 2024. The cost overruns on the tanker run to around $5.4 billion and counting. Moreover, the issues in defense are ongoing with a whopping $1.3 billion charge taken on VC-25B (Air Force One) and T-7A (Red Hawk training aircraft) programs. 
Turning to commercial airplanes, the table below shows how Boeing faces pressure across all its major aircraft programs. Despite the massive backlog on the 737, it will take time to ramp up production, and Boeing has come in for criticism for missing delivery dates by the CEO of Ryanair,  and the CEO of leasing company Avolon thinks Boeing has “lost its way.” The push-out in the expected certification for the 777X (an airplane Boeing hoped would lead a multiyear recovery in the wide-body market starting in 2020) to the end of 2024 is another concerning sign. Finally, Boeing continues to see regulatory scrutiny over production issues on the 787. 

Aircraft Program

Production Rate per month

Backlog as of March 31

Notes

Boeing 737

26 a month

3,365 planes

Currently at 31 a month, deliveries were below expectations in the first quarter due to supply chain disruptions.

Boeing 747

0.5 a month

5 planes

Production will end by the finish of 2022.

Boeing 767

3 a month

103 planes

Potential for orders for freight delivery.

Boeing 777 & 777X

2 a month

74 Boeing 777 planes, 224 Boeing 777X planes

First delivery for the 777X is now expected in 2025, after initial plans for 2020.

Boeing 787

“Currently producing at very low rates until deliveries resume”

405 planes

Deliveries remain halted after Boeing submitted incomplete documentation to the Federal Aviation Administration.

Data source: Boeing presentations. Notes by author.
These issues add up to a company consistently failing to meet expectations. Meanwhile, its net debt has ballooned from $17.8 billion at the end of 2019 to $41.8 billion at the end of 2021, at a time when cash flow is drying up.
Boeing still has green flags
Boeing still has a lot going for it despite all the problems and litany of operational disappointments. Its green flag is its market position within an end market making a recovery. The last weekly commercial flight data shows departures at 83% of 2019 levels,  and the industry continues to build on its recovery from pandemic-related travel restrictions. Moreover, a multiyear recovery is in place, creating opportunities for airline orders. 
Meanwhile, Boeing’s only other major rival in narrow-body aircraft, the Airbus A320 family, also faces difficulties ramping production. Moreover, as you can see above, Boeing has a very healthy backlog on the 737 narrow-body, and clearance to resume deliveries on the 787 will provide a much-needed boost. 
In short, much of Boeing’s problems are fixable, and it’s much easier to do these things in growing, rather than declining, end markets. 
Is Boeing stock a buy?
It probably makes sense to hold off buying the stock for now. After all, if you believe in a multiyear recovery in commercial aviation, then there is no shortage of stocks with aviation exposure to buy ahead of Boeing. In addition, Boeing’s fixes will take time, and until the company delivers a few quarters of better execution, it remains a stock worth avoiding. 
Lee Samaha 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. –

Given that Boeing’s (NYSE: BA) stock is down slightly more than 45% over the last year — the S&P 500 has been flat over the same period — it makes sense to start with the red flag and finish with the green flag. Unfortunately, there are a lot of issues keeping the red flag flying here. However, there are plenty of reasons to consider Boeing as an investment. Here’s the lowdown.

A red flag for Boeing

In a nutshell, it’s execution. Boeing’s recent history contains many operational mishaps and cost overruns that have sapped investor confidence. However, before getting into the problems with its commercial airplanes — they span across all its significant airplanes — investors need to grapple with the defense, space, and security segment issues. 

Image source: Getty Images.

The company’s long-troubled KC-46 tanker (aerial refueling and military transport aircraft) was initially intended to go into full-rate production in 2017, but that date is now delayed until at least 2024. The cost overruns on the tanker run to around $5.4 billion and counting. Moreover, the issues in defense are ongoing with a whopping $1.3 billion charge taken on VC-25B (Air Force One) and T-7A (Red Hawk training aircraft) programs. 

Turning to commercial airplanes, the table below shows how Boeing faces pressure across all its major aircraft programs. Despite the massive backlog on the 737, it will take time to ramp up production, and Boeing has come in for criticism for missing delivery dates by the CEO of Ryanair,  and the CEO of leasing company Avolon thinks Boeing has “lost its way.” The push-out in the expected certification for the 777X (an airplane Boeing hoped would lead a multiyear recovery in the wide-body market starting in 2020) to the end of 2024 is another concerning sign. Finally, Boeing continues to see regulatory scrutiny over production issues on the 787. 

Aircraft Program

Production Rate per month

Backlog as of March 31

Notes

Boeing 737

26 a month

3,365 planes

Currently at 31 a month, deliveries were below expectations in the first quarter due to supply chain disruptions.

Boeing 747

0.5 a month

5 planes

Production will end by the finish of 2022.

Boeing 767

3 a month

103 planes

Potential for orders for freight delivery.

Boeing 777 & 777X

2 a month

74 Boeing 777 planes, 224 Boeing 777X planes

First delivery for the 777X is now expected in 2025, after initial plans for 2020.

Boeing 787

“Currently producing at very low rates until deliveries resume”

405 planes

Deliveries remain halted after Boeing submitted incomplete documentation to the Federal Aviation Administration.

Data source: Boeing presentations. Notes by author.

These issues add up to a company consistently failing to meet expectations. Meanwhile, its net debt has ballooned from $17.8 billion at the end of 2019 to $41.8 billion at the end of 2021, at a time when cash flow is drying up.

Boeing still has green flags

Boeing still has a lot going for it despite all the problems and litany of operational disappointments. Its green flag is its market position within an end market making a recovery. The last weekly commercial flight data shows departures at 83% of 2019 levels,  and the industry continues to build on its recovery from pandemic-related travel restrictions. Moreover, a multiyear recovery is in place, creating opportunities for airline orders. 

Meanwhile, Boeing’s only other major rival in narrow-body aircraft, the Airbus A320 family, also faces difficulties ramping production. Moreover, as you can see above, Boeing has a very healthy backlog on the 737 narrow-body, and clearance to resume deliveries on the 787 will provide a much-needed boost. 

In short, much of Boeing’s problems are fixable, and it’s much easier to do these things in growing, rather than declining, end markets. 

Is Boeing stock a buy?

It probably makes sense to hold off buying the stock for now. After all, if you believe in a multiyear recovery in commercial aviation, then there is no shortage of stocks with aviation exposure to buy ahead of Boeing. In addition, Boeing’s fixes will take time, and until the company delivers a few quarters of better execution, it remains a stock worth avoiding. 

Lee Samaha 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.

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