Boeing Aims for a Reset at the Paris Air Show

The embattled 737 MAX has won an important vote of confidence from one of the world's biggest airline operators

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Jun 21, 2019
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Boeing Corp. (BA, Financial) has had a very rough time of late. The safety issues concerning the 737 MAX jet, which have resulted in two fatal crashes and the grounding of the model, have led to a crisis of confidence in the venerable aerospace company.

Unsurprisingly, recent events have dented Boeing’s stock, while also opening up painful questions about the company’s future. However, it appears the company is making an attempt to reset its relationship with customers and the public. Whether it can succeed in swiftly turning the page on one of the darkest chapters in its long history is far from clear, however.

April showers bring no May flowers

The revelations concerning Boeing’s slapdash approach to safety in its rollout of the 737 MAX resulted in a dramatic fall in new orders, as well as a raft of cancellations.

Last month might well prove to have been the nadir for Boeing, at least for the time being. In May, the company delivered just 30 aircraft, a 56% drop. Eight of the aircraft it delivered were older model 737s, which, despite the poor debut of its successor, remains one of the most popular passenger jets on the planet.

The delivery halt on the 737 MAX resulted in total deliveries falling far short of production -- before the safety crisis and grounding, Boeing had ramped up its production rate to 42 per month. Even more striking was the fact that, after cancellations, Boeing actually netted zero new orders in May. That is hardly a vote of confidence from its industry partners and customers.

The pitiful May delivery numbers added to a painfully slow year. At the end of last year, well before the safety issues blew up company and market expectations, Boeing had guided for between 895 and 905 aircraft deliveries in 2019. Through May, it has delivered a mere 202.

June is busting out all over

After its awful May delivery print (and pretty terrible first half of the year), few industry experts and commentators expected much from Boeing as it headed to the Paris Airshow on June 17. Indeed, there was little enthusiasm for the industry as a whole going into the event in light of a number of factors such as the growing body of economic data pointing toward a slowdown, as well as fears concerning trade war-induced instability.

Boeing began the air show on a low note, with Kevin McAllister, the company’s president and CEO of aircraft, delivering yet another apology and promise to do better in the future:

“We are very sorry for the loss of lives … It is a pivotal moment for all of us. It’s a time for us to make sure that accidents like this never happen again.”

Evidently, Boeing’s efforts have started to pay off, at least with some customers. For example, British Airways CFO Steve Gunning expressed “confidence” in Boeing’s ability to recover from its current woes following McAllister’s latest genuflection. Such words are cheap in themselves, but British Airways has evidently proven itself willing to put its money where its mouth is in this case: On June 18, IAG, British Airways’ parent company, announced an order of 200 737 MAX jets, the first large order of the aircraft since its grounding.

The IAG order is obviously a major coup for the embattled Boeing. The company had deliberately tried to mute industry expectations in the run up to the Paris Air Show, so winning a big order came as quite a surprise - and certainly a welcome one to Boeing’s battered shareholders. Some now hope this could mark the start of a turnaround. But that sentiment would be premature.

Verdict

Boeing’s unexpectedly strong showing at the Paris Air Show this week may help to restore at least some of the confidence lost in the wake of the 737 MAX crisis, but there remains a very long way to go before it can claim to be completely out of the woods. The 737 MAX is still grounded, despite IAG’s big order, with no clear end in sight.

Given the continued uncertainty surrounding the future of the 737 MAX, as well as the unknown engineering and legal costs Boeing now faces, it is remarkable that the company’s stock has held up so well. Shares are actually up nearly 14% thanks in no small part to the industry-wide boost from the increasingly bellicose Trump administration.

The stock has held its ground, with investors expecting a return to normalcy soon. We are not so sure that such confidence is warranted. Certainly, we will not be buying Boeing until the dark clouds created by the 737 MAX crisis are thoroughly dispelled.

Disclosure: No positions.

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