Boeing Is Down, But Not Out

In just a few months, two of the Boeing 737 Max 8 falls off the sky. Is this the end of one of the Industry leader?

Just before the Ethiopian Airlines crash, Boeing stock was selling for $250 billion. Now, it’s offered at $211 billion. A discount of $30 billion.

Retail investors like you and I should check the quality of discounted tomato before we put it in our basket.

History

This is not the first time this happened to Boeing with different reasons. Five decades ago, Boeing’s new 727 jets also had a terrible start. Slowly but surely, Boeing gained the trust back and 727 eventually became one of Boeing’s best sellers.

However, those 727 jets were flying with half full cabins for a long period of time.

Fundamentals

Boeing’s 60 percent of the total revenue comes from the Commercial Airplanes.

In 2018, they delivered a record 806 commercial airplanes, including the first 787-10 Dreamliner, 737 MAX 9, 737-800 Boeing Converted Freighter and BBJ MAX.

Also, they won 893 net orders for commercial airplanes, raising the company’s total order backlog to nearly 5,900 airplanes—worth about seven years of production.

On the Defense side, they booked $36 billion of new Defense, Space and Security orders.

Risk

There is a risk of cancellation of the orders for Max 8. According to Associated press, Lion Air and Ethiopian airlines have 300 orders. Boeing has about 4,600 unfilled Max orders, making up the bulk of a huge backlog that the company values at $490 billion.

However, it is difficult and unusual for airlines to switch an order from one aircraft manufacture to another. Also, a wholesale cancellation is unlikely. Though, Lion Air and Ethiopian airlines might switch to a different type of aircraft.

It is estimated that Boeing will pay about $2 billion after insurance to fix the planes, pay crash victims families and compensate airlines that had to cancel flights.

Opportunity

It is estimated that the total aviation market Opportunity to be $8.1 trillion over the next 10 years, Boeing isn’t a company in search of a market.

Boeing forecast a need for nearly 43,000 new commercial airplanes over the next 20 years, effectively doubling the size of today’s global fleet.

We believe there is a huge opportunity in the aviation sector.

Final Thought

The tail wind for the Boeing is that it is American designed and build.

People around the globe believe and admire American quality and standard. Highly risky products like aircraft are bought keeping those standards in the fontal loop of the decision making process.

Boeing will surely get over this. Yes, a ton of lawsuits and claims are filed in the US and international courts. Financially, Boeing is shielded because of its insurance. Creditibility wise, there will be a lot of work to do.

Boeing is responding with utmost urgency and responsibility. Safety is the highest priority for Boeing.

” Boeing continues to support the investigation, and is working with the authorities to evaluate new information as it becomes available. Safety is our highest priority as we design, build and support our airplanes.  As part of our standard practice following any accident, we examine our aircraft design and operation, and when appropriate, institute product updates to further improve safety.”

Link below if you want to read the full text.

Dennis Muilenburg’s (Chairman, President & CEO) letter. (Boeing.com)

Disclaimer: No position.

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