How Bad Will It Get for Boeing?

The 737 Max was a hot-selling item for Boeing until its controls went haywire and two planes full of people died. Boeing profits are down by half as the 737 Max is grounded, sales have stalled, and 787 Dreamliner sales are slumping due to the trade war. Despite early talk that the 737 Max would be flying again by the end of the year, Boeing intends to halt production as of January of 2020. How bad will it get for Boeing as the 737 Max problem draws out?

How Bad Will It Get for Boeing and Its Investors?

CNN reports that Boeing stock continues its slide after the company announced plans to halt production of the 737 Max after the first of the year. As we noted above, profits are down substantially and Boeing is parking new 737 Max aircraft in the desert, awaiting FAA approval to fly the plane again.

Boeing said late Monday that it will suspend 737 Max production for an indefinite period of time starting at some point in January. The company made the decision because of the continued uncertainty about when the plane will be allowed to fly again.

Boeing’s (BA) stock was down more than 1% in early trading Tuesday. Shares have fallen 7% since FAA Administrator Stephen Dickson said last Wednesday that there was no way his agency would approve the plane to fly again by the end of the year. Up until then, Boeing had been hoping to get FAA approval by that target date. The company had warned that a shutdown of 737 Max line was possible if the approval was pushed to 2020.

But, despite being one of the two largest producers of commercial jet aircraft, along with Airbus, Boeing is a lot more than commercial aviation.

Boeing Business Divisions

These are the Boeing business divisions:

  • Boeing Commercial Airplanes (BCA)
  • Boeing Defense
  • Space & Security (BDS)
  • Engineering
  • Operations & Technology
  • Boeing Capital
  • Boeing Shared Services Group

The company designs and manufactures rockets, airplanes, rotorcraft, telecommunications equipment, satellites, and missiles to customers across the world. It also has comprehensive product support and leasing services as one of the largest global aerospace manufacturers and the number five ranking defense contractor. According to the Boeing 2018 financial report, here are its profits by division.

  • Commercial Airplanes: $7,879 million
  • Defense, Space, and Security: $1,594 million
  • Global Services: $2,522 million

The current list of jets that Boeing makes are these:

  • Next-Generation 737
  • 737 Max
  • 747-8
  • 767
  • 777
  • 777X
  • 787
  • Freighters
  • Business Jets

And, the company makes money from support and services on all of its jets.
Although the majority of Boeing’s income is derived from commercial airplane sales, the 737 Max is only part of that picture. As Boeing loses sales of this aircraft, it does not necessarily lose jet aircraft sales to Airbus or any other manufacturer. Boeing has enough other jets to sell that they will be able to cushion the loss of 737 Max sales into the indefinite future.

Intrinsic Stock Value of Boeing

There is no question that Boeing stock is heading downhill as the 737 Max situation unfolds. There will likely be lawsuits that drag out for years. And, once the plane is OK’d again by the FDA, it will need to pass muster by aviation authorities across the world. A basic issue with the Max and the crashes is the complexity of the automatic controls and the need for experienced pilots and better training. This may be the biggest roadblock to selling the plane into expanding markets where pilot training leaves much to be desired. In the meantime, long term investors can look to the future and consider how the company will be doing in 5, 10, or 20 years. No one is going to step up and take their place. As such, we can expect a long term recovery after, hopefully, some painful lessons have been learned. Smart investors will wait as the story unfolds and aim to buy Boeing when its share price bottoms out.

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