The Boeing Dilemma - Is It Too Big To Fail...?

****Ticker Symbols:- The Boeing Company (BA) - $184.57, Airbus SE (AIR - EPA) - €152.60, Spirit AeroSystems (SPR) - $30.76

What Happened?

The obvious place to start maybe, the fact that this is a richly storied company, boasting a 107 year history at the tops of aviation success. However, this piece is not meant to put any of that ‘trophy case’ character into question but to answer a simple question. What now?

BA has historically been a decent performer with its stock going from $19.75 in 1990 to $60.60 in 2010. Fortunately for BA, this was only the beginning. The following decade saw its stock rocket to $318.27 in January of 2020, with highs of $429.66 in February 2019 just a year prior. One could consider this the ‘golden age’ of BA.

‘Houston, We Have A Problem’

The first major piece of controversy was with BA’s 737 Max planes. Two crashes of the aircraft, the first an Indonesian Lion Air crash in October 2018, followed by an Ethiopian Airlines crash in March 2019, killing 346 people between the two incidents.

On March 11, China was the first to ground all 737 Max planes with multiple countries following suit the following day. Despite this, the U.S. FAA issued an Affirmation of the Continued Airworthiness of the 737 MAX but, 2 days later, was forced to issue an Emergency Order of Prohibition grounding Boeing 737 MAX aeroplanes. The U.S. FAA was one of the last countries to ground the planes, no surprise here, it being one of the country’s juggernaut darlings. The accidents and grounding cost Boeing an estimated $20 billion in fines, compensation, and legal fees, with indirect losses of more than $60 billion from 1,200 cancelled orders. This grounding lasted 20 months but the stock price didn’t really take a knock till lockdown hit.

The next chip to fall was in May, 2022, when the share price dropped 10% on disappointing production and delivery data. Largely due to continued scrutiny towards their main aircraft we would say. This wasn’t helped when in September, there was the V-22 Osprey settlement with the U.S. military that was announced and a further hammering came in the form of expanded inspections of the 737 Max in October of the same year. Talk about not catching a break.

Lockdown - The Desolation Of No Travel

BA shares fell more than 70% between mid-February and mid-March in 2020, as air flights ground to a halt on global travel restrictions. Boeing shares still haven’t recovered, and are about 30% lower than their pre-pandemic levels.

So, now we have a beleaguered stock that has safety concerns popping up every other day through engineer testimonies. Then, more incidents kept rearing themselves that kept that safety narrative on the lips of investors and whether airlines would still buy BA aircraft. All this contributed to the stock failing to recover to pre-pandemic levels. With its stock price at 27.76% year-to-date, in the red.

Competition Performs

AIR - EPA has had significant strides seen, constantly. Leading many to believe the strategy it has implemented, has returned stacks of shareholder value. Year-to-date, the share price is up 10% with the stock rebounding from pre-pandemic levels when the travel restrictions were lifted worldwide. The benefit of an unmuddied current state of affairs did greatly prompt this growth, with AIR - EPA has even outpaced Boeing for five straight years in plane orders and deliveries, and just reported a 28% quarterly increase in net profit. It was already winning market share by beating Boeing to develop a line of fuel-efficient, mid-sized aircraft that are cheaper for airlines to fly.


AIR - EPA is seen as a better investment and the continued scrutiny on its rival BA won’t do it any favours at this point. However, here is our take. The U.S. has a vested interest in one of its legacy companies that still has a part to play in creating valuable tech, not only for its airline clients, but for the government as well. AIR - EPA despite gaining more market share, cannot meet global aircraft demand on its own. So some analysts have pegged BA to get its act together and with the support of the largest economy in the world, it should come good, as they say. Especially with moves like the announced quality improvements set to take centre stage, the leadership change at CEO level and the planned re-acquisition of Spirit AeroSystems (SPR).

China has even gone on to develop its own challenge to the A320 and the 737, called the C919. It is produced by Commercial Aircraft Corporation of China (COMAC), a state owned firm founded in 2008 and with what we have seen of China in the last 2 decades, this is definitely something to keep a side eye on.

Posted in Stocks on Jun 06, 2024