Shares of Boeing Co. (NYSE: BA) were up 13% in afternoon hours on Monday. The stock is down 63% from its 52-week high of $391. As the aviation industry suffers considerably from the coronavirus pandemic, Boeing has also taken hits. From the looks of it, the upcoming months could particularly be tough for the aircraft-maker.
737-Max tragedy
Boeing’s problems started way before the COVID-19 health
crisis with the grounding of its 737-Max aircraft. The company temporarily
suspended the production of the 737-Max in January and stated at the time that
it expects to receive certification by mid-2020.
In its 10-K filing, Boeing mentioned that the grounding has
impacted its revenues, operating margins and cash flows and the company expects
to take a hit to these metrics until production and deliveries resume and the
rates of production return to the levels they were at before the grounding.
Delays in bringing back the 737-Max to service and resuming
deliveries to customers are expected to result in additional costs for Boeing
which in turn could affect cash flows. In 2019, the company recorded an
earnings charge of $8.2 billion associated with estimated concessions and other
considerations to customers for disruptions and delivery delays due to the
grounding. Any further charges in this range will take a toll on the company’s
financials.
COVID-19 mayhem
The current health crisis has pushed Boeing’s plans further
downhill. The company has halted operations at its Puget Sound and Philadelphia
facilities and expects to resume work towards the end of this month. These
stoppages will affect the company’s ability to meet customer requirements thus
putting pressure on its performance.
Like several other firms, Boeing too has suspended its
dividend and share buyback programs amid the crisis and its executives have
decided to take pay cuts. It also remains to be seen whether the pandemic will
delay the 737-Max’s return to service.
Boeing is one of the major aerospace companies in the world
and a leading producer of commercial aircraft. The company had a total
workforce of approx. 161,100 at the end of 2019.
Customer woes and
competition
The coronavirus outbreak has caused the airline industry
some major turbulence and Boeing’s customers include several leading airlines
such as American Airlines (NASDAQ:
AAL), Delta Air Lines (NYSE:
DAL) and United Airlines (NYSE:
UAL).
Last month, American Airlines reduced its international
capacity for the summer peak by 10% with a 55% reduction in trans-Pacific
capacity. The company also said it would reduce its domestic capacity by 7.5%
in April.
Delta announced a 20-25% reduction in international capacity
and a 10-15% reduction in domestic capacity. United announced a 60% schedule
reduction in April, with a 42% reduction across the US and Canada and an 85%
decrease in international flights.
With the airline industry seeing large declines in capacity
and demand, a recovery is bound to take some time. This is likely to put new
orders and purchases on the backburner for now or even lead to order
cancellations. This trend could negatively affect Boeing, which also faces
tough competition in the commercial airplanes space.
Boeing’s main rival in the commercial airplane space is European
firm Airbus SE, which continues to increase its market share in the US. Airbus
is solidifying its North American operations and partnering with US defense
companies as part of these efforts. Experts believe Airbus stands to benefit
from any order cancellations that Boeing faces as the former would be the next best
choice for customers.
Taking all these factors into consideration, it is likely that even after the current crisis subsides, Boeing’s struggles might not end. The fate of the 737-Max and how things go from there are crucial points to watch in the coming months.
Boeing is expected to report its first quarter 2020 earnings results at the end of this month. Stay connected with AlphaStreet for the live earnings coverage, infographics and follow-up stories.