Earlier this year there were two air crashes of the Boeing 737 Max jets and countries around the world stopped the flying of the jets. In turns out there were software problems in the jets and it was not an isolated little problem. The short term solution was to stop production of the 737 and airlines across the world lost money because the grounding of the plane made them cancel routes. It also turns out the regulatory body or FAA knew or was a little too cozy with Boeing before the crashes. At Boeing, as would be expected, the stock fell because in the domestic air space, the 737 Max was going to be Boeing chief generator of profits for the next 10 years. Boeing does also have a large military component and has other civilian aircraft which meant it was not going out of business.
In an article by Eric Johnson of Reuters, Boeing has told suppliers it will resume production of its 737 Max jets at 52 a month in February of 2020 and increase that to 57 by June. The schedule is dependent on the regulators approving the 737 Max to fly in the fourth quarter of 2019. Last month, the President of Boeing Dennis Muilenburg told analysts there was no guarantee when regulators would clear the production to ramp up again.
In normal times, production rate changes are usually incremental and communicated months or years in advance, but the challenge of the 737 Max has forced Boeing to scramble.
Linking to dividend paying stocks, all companies have divisions which are expected to grow and be cash cows for the company. From the outside, one would like to think the division has all the bells and whistles to ensure operations are as normal as possible, then something happens. The product or service is pulled from the market, the competition sets in and the stock price falls because of increased competition. In Boeing’s case, the competition is Airbus and they have sold more planes than Boeing, it will take time but given the nature of the aircraft industry they should return to what is consider normal. It does not happen all the time, why would it happen with your investments?
There are more questions than answers, till the next time – to raising questions.