Insights

Why Boeing Shares Are Falling Today

What happened
Boeing (NYSE: BA) just can’t seem to steer clear of turbulence, and investors along for the ride are likely feeling airsick. Shares of the aerospace giant traded down about 5% on Tuesday after a report of yet another issue that could weigh on deliveries in the months to come.
So what
Boeing hasn’t given investors much to get excited about over the past few years. The company was already under pressure when the pandemic hit due to issues with its 737 MAX, a plane that was grounded for 18 months following a pair of fatal crashes. The pandemic, and its impact on airlines, caused Boeing shares to lose nearly 75% of their value in the early months of 2020, and attempts to recover from those lows have been underwhelming.
A Boeing 737 MAX. Image source: Boeing.

The 737 MAX is flying again, and airlines are in the early stages of a recovery. But intense regulatory scrutiny on Boeing brought on by the 737 MAX accidents has delayed the much-anticipated update to its 777 for years. And deliveries of its 787 Dreamliner are halted while inspections are being performed. Combine those issues with a 737 MAX assembly line that is still not producing planes at anywhere near the monthly numbers Boeing had once envisioned, and there isn’t much cash coming through the door.
The latest blow to Boeing’s recovery is something outside of the company’s control. Reuters is reporting that jet engine maker CFM International, a joint venture between General Electric (NYSE: GE) and Safran (OTC: SAFRY), is facing delays of six to eight weeks due to supply chain problems and French labor unrest. The delays are likely to linger into the fourth quarter, long enough to potentially crimp production plans.
CFM engines power most narrow-body aircraft, including Boeing’s 737 MAX and the Airbus (OTC: EADSY) A320. Reuters said that Airbus has reached out to customers about potential delivery delays. Boeing earlier this month said supply chain disruptions were a threat to 737 MAX production.
Boeing shares could also be under pressure due to a report by the influential trade publication The Air Current stating that Pentagon buyers have doubts about the company’s long-held position as a key military supplier.
Now what
Boeing shares are now off more than 40% year to date, and are within range of retesting the lows hit in March 2020. Boeing’s total debt quadrupled during the crisis, and the company needs an uptick in deliveries to boost its cash flow and allow it to begin to repay the borrowings it took on to survive the pandemic.
The bull case for Boeing has been the same for a while now. Over the next 20 years, demand for air travel is expected to grow at an annualized pace of more than 2%. And Boeing, as one half of a duopoly with Airbus, is likely to soak up a lot of that demand. What has changed over the past year is investor expectations about how quickly Boeing can recover, and how quickly the stock will move higher. It is getting harder by the day to make the case for a quick recovery, and investors are selling off the shares as a result.
Lou Whiteman 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. –

What happened

Boeing (NYSE: BA) just can’t seem to steer clear of turbulence, and investors along for the ride are likely feeling airsick. Shares of the aerospace giant traded down about 5% on Tuesday after a report of yet another issue that could weigh on deliveries in the months to come.

So what

Boeing hasn’t given investors much to get excited about over the past few years. The company was already under pressure when the pandemic hit due to issues with its 737 MAX, a plane that was grounded for 18 months following a pair of fatal crashes. The pandemic, and its impact on airlines, caused Boeing shares to lose nearly 75% of their value in the early months of 2020, and attempts to recover from those lows have been underwhelming.

A Boeing 737 MAX. Image source: Boeing.

The 737 MAX is flying again, and airlines are in the early stages of a recovery. But intense regulatory scrutiny on Boeing brought on by the 737 MAX accidents has delayed the much-anticipated update to its 777 for years. And deliveries of its 787 Dreamliner are halted while inspections are being performed. Combine those issues with a 737 MAX assembly line that is still not producing planes at anywhere near the monthly numbers Boeing had once envisioned, and there isn’t much cash coming through the door.

The latest blow to Boeing’s recovery is something outside of the company’s control. Reuters is reporting that jet engine maker CFM International, a joint venture between General Electric (NYSE: GE) and Safran (OTC: SAFRY), is facing delays of six to eight weeks due to supply chain problems and French labor unrest. The delays are likely to linger into the fourth quarter, long enough to potentially crimp production plans.

CFM engines power most narrow-body aircraft, including Boeing’s 737 MAX and the Airbus (OTC: EADSY) A320. Reuters said that Airbus has reached out to customers about potential delivery delays. Boeing earlier this month said supply chain disruptions were a threat to 737 MAX production.

Boeing shares could also be under pressure due to a report by the influential trade publication The Air Current stating that Pentagon buyers have doubts about the company’s long-held position as a key military supplier.

Now what

Boeing shares are now off more than 40% year to date, and are within range of retesting the lows hit in March 2020. Boeing’s total debt quadrupled during the crisis, and the company needs an uptick in deliveries to boost its cash flow and allow it to begin to repay the borrowings it took on to survive the pandemic.

The bull case for Boeing has been the same for a while now. Over the next 20 years, demand for air travel is expected to grow at an annualized pace of more than 2%. And Boeing, as one half of a duopoly with Airbus, is likely to soak up a lot of that demand. What has changed over the past year is investor expectations about how quickly Boeing can recover, and how quickly the stock will move higher. It is getting harder by the day to make the case for a quick recovery, and investors are selling off the shares as a result.

Lou Whiteman 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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