October 21, 2019 BARRON’S
A Return Visit to Earlier Stories
More Turbulence Ahead for Boeing
BOEING SHARES FELL NEARLY 7% ON FRI-
day,to$344,onnewsthatacompanytech-
nical pilot had raised concerns in 2016
instantmessagestoacolleagueaboutcer-
tain systems on Boeing’s 737 MAX jet,
which were later implicated in two fatal
crashes. Boeing turned the information
overonThursdaytotheFederalAviation
Administration, which said the company
had discovered the messages “some
months ago.”
Therevelationsarethelatestblackeye
forthecommercialaerospacegiant,which
wasforcedtogroundtheMAXinMarch
due to safety concerns. They also mean
moreuncertaintyforBoeingshareholders,
whoarekeenlyfocusedonwhentheMAX
might return to service. Boeing’s stock
(ticker:BA)hasfallen9%sincetheflying
ban, although it is up year to date.
Anythingthatdemonstratesprogress
on clearing the plane for flight would
probably cause a rally in Boeing shares.
Richard Safran, an analyst at Bucking-
ham Research Group, thinks the stock
willtradebackuptoapregrounding$
or so when the plane is allowed to fly
again, implying a gain of 22% from Fri-
day’s close.
“When” is the operative word, of
course, but Boeing faces three tests in
comingweeksthatmightyieldimportant
clues.
Boeingwillreportthird-quarterearn-
ingsonOct.23.Theactualnumberswon’t
matter,butinvestorsarehopingforsome
sort of update about the MAX’s status.
(For those keeping score, Boeing is ex-
pectedtoearn$2.21ashareforthequar-
ter, down 37% year over year.)
Next,BoeingCEODennisMuilenburg
isscheduledtotestifyonOct.30beforea
House transportation committee on the
plane’sdesignandcertification,andmay
appear before a Senate committee, as
well.Theinstant-messagerevelationsare
almost certain to be on the agenda.
Finally, Boeing will submit proposed
fixes for the MAX to global aviation au-
thorities later this fall.
Boeing’s most recent guidance is for
the 737 MAX to fly commercially again
bytheendof2019.Thatlooksoptimistic.
Southwest Airlines (LUV), which flies
anall-737fleet,hasremovedthenewest
model 737 from schedules throughFeb-
ruary 2020. United Airlines Holdings
(UAL)recentlyremovedtheMAXfrom
its schedules until January.
Investors also want an update about
production. Boeing cut back production
of the plane in April. Since then, about
275 new jets have rolled off assembly
lines and been parked. The company
mightcutproductionagaintomanagein-
ventory levels and cash flow.
More delays and production cuts
soundbad,butifdelaysstretchoutjust
afewmoremonths,theupdatescouldbe
good news for the shares.
Barron’s recommendedBoeingshares
inNovember2018,shortlyafterthefirst
737 MAX crash. We didn’t foresee the
subsequent problems, although despite
them, the stock has returned 1% since,
versusatotalreturnof10%fortheS&P
500 index. The structure of the commer-
cialaerospaceindustryhashelped:There
areonlytwomajorsuppliersofcommer-
cialaircraft,andjetbacklogsstretchout
for years.
Longer term, Boeing’s stock’s trajec-
torywilldependonconsumeracceptance
of the updated MAX jet. UBS analyst
MylesWaltonrecentlysurveyed1,000fli-
ers, and most indicated they would feel
comfortableonaMAXjetafteraboutsix
monthsofsafeoperation.Whenthathap-
pens, the stock will be higher. —ALROOT
Boeing
BA/NYSE
Source:FactSet
Oct.
2019
Nov. 28, 2018
Oct. Apr.
2018
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