Last year there was no tragic crashes of planes and although one can easily argue it took a little too long to ground the plane, the planes across the world were landed and have been parked ever since. Planes are more complex than we all thought they were, for it has taking about a year to fix the problem and more importantly to achieve the regulators’ blessings to fly again. In the world of domestic airlines, two manufacturers dominate the sky – Boeing and Airbus. The Boeing MAX 737 was supposed to be the cash cow or profit generating plane for Boeing for the next 10 plus years, the plane crashes has changed everything.
In late January, Boeing posted a lost as reported by Ankit Ajmera and David Shepardson of Reuters. The costs to fix the plane has doubled to $19 billion. Even with that type of loss, analysts were predicting a greater loss, so the shares although down 25% since March of last year remain stable. The company is diversified, which has limited the decline in the stock price.
Deliveries of hundreds of jets remain frozen while Boeing updates the flight control system and software to address the issues in the crashes. New Boeing President and CEO David Calhoun said he believes Boeing can achieve regulatory approval by mid year. That timeline was expected last year and that is part of the reason for the new President.
Costs related to the 737 Max grounding reached $14.6 billion in 2019 and Boeing has warned of another $4 billion in 2020, originally Boeing estimated the costs at $9.2 billion. In 2019, Boeing core operating loss was $2.53 billion or $2.33 a share compared to a profit of $3.87 billion or $5.48 a share a year earlier. Part of the loss was paying customers who have planes sitting on the ground.
Linking to dividend paying stocks, Boeing has a diversified portfolio of planes – commercial, military and space. In the commercial division there is really only one competitor – Airbus, once the plane is approved to fly again, the company should easily return to making profits. The MAX 737 shows what happens when there are few competitors and when things are relatively normal, the cash flow will easily pay dividends. The stock should move upwards once regulatory approval is given.
There are more questions than answers, till the next time – to raising questions.