It has been a turbulent 18 months for the world’s largest aircraft manufacturer as Boeing’s stock struggles to get off the ground with mounting costs.
Last week was a tough one for Boeing (NYSE: BA). America’s largest exporter saw its stock plunge alongside the wider market sell-off that took place due to ongoing coronavirus fears.
In the midst of all these recent troubles, which has seen the S&P 500 (NYSEARCA: VOO) plummet more than 10% in the past month, Boeing is still struggling with ongoing issues related to two fatal Boeing 737 Max crashes from October 2018 and March 2019.
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Is the Boeing 737 Max still grounded?
Almost 12 months later and Boeing’s important 737 Max range is still grounded as the airline manufacturer struggles through a mountain of legal proceedings. The month of March has already gotten off to a bad start for Boeing, getting slammed by U.S. Congress and the Federal Aviation Administration (FAA) for the Max aircraft’s failures.
Much of the allegations against Boeing for the aircraft’s faults, which resulted in 346 deaths, lies around the company reportedly rushing the product to completion amidst intense competition from European rivals Airbus (EPA: AIR).
The committee’s report stated: “There was tremendous financial pressure on Boeing and subsequently the 737 Max program to compete with Airbus’ A320neo aircraft.”
Such pressure is alleged to have encouraged Boeing to ignore basic design flaws, including a fault in the plane’s new stabilization system, which pushed both fatal flights into steep nosedives from which the pilots could not recover.
When will the 737 Max be airborne again?
The FAA has stated that the 737 Max should be released to fly again by summer 2020, but recent issues have put this timeline in jeopardy. It was reported on March 8 that Boeing would have to rewire all of its 737 jets, deeming them as non-compliant with FAA standards. Boeing appealed the decision, but to no avail, and will have to modify all wire bundles in its 737 range, despite contending that the bundles offer no risk to passenger safety.
The FAA has not updated its summer target for the jetliners return to the skies, but Congress’s doubts, as well as mounting costs, could put a spanner in the works. Boeing’s 737 Max costs, including shutting down production, loss of sales, and legal proceedings, have cost the company more than $18 billion over the past year.
Can Boeing recover from 2019?
2019 was a very worrying year for Boeing, with the company selling just 380 aircraft compared to a record-breaking 806 in 2018. As well as that, it lost 87 orders due to delays and cancellations.
It was one of Boeing’s worst years also in relation to its public image, which took a real beating. 737 Max delays had a massive knock-on effect on supply partners, who had to be financially compensated due to delays, while major airlines such as American (NASDAQ: AAL), United (NASDAQ: UAL), and Delta (NYSE: DAL) all took hits as they removed Max planes from their schedules. Delta and Southwest Airlines (NYSE: LUV) still don’t have the Max scheduled into flights through June 2020.
Despite all of this, Boeing’s stock still gained just under 1% in 2019. Now, however, the coronavirus poses a brand new threat that Boeing and the airline industry certainly did not need.
First the 737, now coronavirus…
Mere days after U.S. Congress slammed Boeing for its 737 being ‘marred’ with technical problems, Boeing stock opened up on Monday down nearly 10%, to its worst levels since 2017.
The main concern is no longer the 737 Max, but rather how much long-term damage the coronavirus could do to the air travel industry. Even before the coronavirus fears escalated in late February, Boeing had lost $60 billion in value, and when the 737 Max does return to the market, Boeing would likely have to offer it at a severely reduced cost to airlines.
Now it is possible that airlines won’t even be able to afford it as the coronavirus is expected to wipe out more than $110 billion in air travel revenue this year alone. In the UK, budget airline Flybe has already collapsed, while German Lufthansa is seeking a bailout from the government in order to survive the contagions damage to the business.
Boeing’s stock is finally suffering a reaction, as its client base feels the sting of the virus. Should airlines continue to suffer massive losses, especially in the U.S. where the majority of Boeing’s business is based, Boeing can expect a very rough road to recovery. Already, it’s stock is down more than 25% year to date, and unfortunately, the virus is only beginning to take hold in the U.S.
Boeing is still an industry giant, and one of America’s largest exporters, alongside Apple (NASDAQ: AAPL), and it would be a far stretch to say that the coronavirus will be the straw that breaks the camel’s back. However, there are certainly times for uncertainty as we move forward, and Boeing’s stock troubles could just be getting started.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold no positions in Boeing. Read our full disclosure policy here.