Typically, becoming the CEO of a world-renowned blue chip is a tremendous honor. Unfortunately for Boeing (NYSE:BA) head exec David Calhoun, it’s an extremely dubious one. You couldn’t script a worse time to take over a company, especially one that’s as embattled as the airplane manufacturer. Unfortunately, I don’t think Calhoun has what it takes to spark a meaningfully expedient recovery in Boeing stock.
Please don’t get me wrong – this isn’t a dig at Calhoun. In fact, the problems facing Boeing stock are so severe and unparalleled that I don’t think anyone has the capability of inspiring a comeback. As the Washington Post’s Christian Davenport and Aaron Gregg argue, the avalanche of problems is coming from all angles. They wrote:
Since the pandemic spread to the United States, virtually every day has brought a cascade of bad news for Boeing. It’s been forced to shutter major manufacturing plants outside of Seattle, then Columbus, then Philadelphia, then Charleston, forcing the world’s largest aerospace company temporarily to halt all final assembly of commercial airplanes. There was a round of voluntary layoffs. Avalon, a plane leasing company, canceled an order of 737 Max jets worth $8.4 billion. Analysts predict other customers could delay or cancel orders.
Furthermore, nearly 17 million Americans filed for unemployment benefits over a three-week period. From every indication, this is an understated tally. As panicked workers clogged phone lines and the internet, individual state unemployment offices couldn’t handle the deluge. And come Thursday, we could see another set of millions facing joblessness.
Of course, this is all a net negative for Boeing stock. Without demand, it’s not economically feasible for BA to return to full production.
Unprecedented Crisis Risks Gutting Boeing Stock
On the flipside, contrarians have argued that BA is a vital organization caught in a bad moment. Further, the U.S. government has pledged its support. Honestly, given how iconic Boeing is, they cannot let the organization fail.
Yet I sincerely believe that those who are calling for the contrarian bull case are not looking at the data. According to the Bureau of Labor Statistics, the consumer price index for all urban consumers declined 0.4% in March. This is the largest decline in CPI since January 2015.
Initially, this doesn’t sound too bad at all. However, you must keep in mind that multiple sectors have experienced a demand paradigm shift. For instance, I’m sure that if you looked at CPI for toilet paper and face masks, they’ll be through the roof. But for the energy and gasoline indices, these metrics fell 5.8% and 10.5%, respectively.
Where it gets really bad for Boeing stock is the CPI for airline fares. According to the Federal Reserve Economic Data, this index fell 12.6% from February to March.
How bad is that? It’s the worst-such month-to-month decline since at least January 1989. Because of the sheer velocity of negativity, I don’t think the consumer will readily jump aboard airliners. Thus, I can’t see myself recommending Boeing stock without mentioning this unprecedented risk.
For context, consider that between August 2008 to November 2008, airline fare CPI dropped 9.9%. Further, between August 2001 and December 2001, the sector CPI dropped 6.3%. Despite a global financial meltdown and a terrorist attack, neither event caused the immediate and massive hemorrhaging that we saw occur in just a one-month period.
Frankly, those buying Boeing stock on this weakness may not realize the scale of this devastation.
No Realistic Support Channels
Now, it’s true that BA isn’t just levered to civilian businesses. As Davenport and Gregg mentioned, the company is “… not only too big to fail, but it is also a key Pentagon contractor — the maker of F/A-18 Hornets, Apache helicopters, even Air Force One.”
Can you imagine Boeing going bankrupt? I don’t think it’s going to happen. Nevertheless, it’s also better for investors to view Boeing stock as a glass half empty rather than half full.
Because of the oil price war, it’s very likely we’ll see geopolitical turmoil in the Middle East. Further, despite a historic production cut among OPEC+ nations, signs suggest that tensions have not completely cooled down. If that’s the case, then yes, Boeing’s military assets offer some mitigation.
Still, that doesn’t take away from the fact that the company is mostly exposed to civilian economic concerns. Plus, bombing your way to prosperity is a dubious tactic. After all, U.S. markets didn’t recover from the Great Depression until well after World War II.
Therefore, even if you’re bullish on Boeing stock, I’d exercise caution. At the very least, you’ll likely get a better discount with patience.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.