What happened
Actions of Boeing (NYSE: BA) lost altitude on Monday after an analyst downgrade. The shares fell by 4.6% as investors digest the long recovery ahead of the aerospace giant.
And
Boeing and its investors will be happy to see 2020 finished. Shares lost 34% in the year and, at one point, fell almost 75%, in the double blow of continuing problems with the 737 MAX and the impact of the pandemic on commercial airlines.
The year apparently ended in an optimistic balance, with the 737 MAX recertified to fly again after 20 months on the ground and a COVID-19 vaccine giving hope that the worst is over for aviation. But Boeing faces a multi-year recovery and has no quick fix.
Image source: Boeing.
Bernstein analyst Douglas Harned on Monday downgraded Boeing to underperforming the market, noting that the expected increase in sales of the 787 Dreamliner in the fourth quarter never materialized. Boeing delivered only a 787 in December, and none in November, and the plane continues to be haunted by production quality concerns.
The 787 kept Boeing up in the air for the first few days of the 737 MAX’s stranding, but Boeing will have a difficult time relying on that plane’s revenue to fuel a recovery elsewhere. Boeing took on $ 25 billion in new debt in 2020 in response to the two crises, and needs a recovery in aircraft sales to pay off that debt.
What now
Boeing is at a crossroads. The worst is probably behind this, and with stocks still well below where they traded before the 737 MAX and pandemic issues, it is tempting for investors to embark on the bullish wave.
But Boeing faces a tremendous challenge in delivering planes in this environment and is unlikely to see production at the levels assumed when inventory was flying high in the near future. And Boeing’s current sales price is actually much higher than it has been in the past three decades, raising questions about how affordable the company is.
I am optimistic about an eventual aviation recovery, but there are much better alternatives to Boeing for those who want to invest based on this recovery. Investors must be wary of Boeing now.