Boeing (NYSE:BA) stock is on top of investors’ lists once again following the imminent return of the 737 Max. The aircraft was grounded following a fatal crash in 2019 but will soon see the end of its long hiatus. On Tuesday, the Federal Aviation Administration (FAA) officially declared the 737 safe to take flight, pushing Boeing stock up by 5%. 2020 has been a good year for the aircraft manufacturer. The green light on the MAX and the arrival of the Covid vaccine have done wonders for its stock price in the last couple of months. If you want to make a play on Boeing stock, this is the perfect time.
Boeing Stock Soars After A Bumpy Ride
After remaining earth-bound for the last 20 months, European regulators announced that the 737 MAX will once again take flight next month. Following the news, the company’s shares powered 5% higher on Tuesday. In November, the U.S. airline authority, the FAA also gave the MAX the green light to return to commercial travel on December 29.
The approval from the regulators comes after the 737 underwent modifications and extensive quality checks in the last year. This includes the installation of a new flight-control computer (FCC) software and initiating new flight crew procedures. FAA regulators are now “100% confident” in the aircraft’s capabilities.
While the arrival of the 737 Max is great news for the company, Boeing still has to face the impact of the pandemic. The manufacturer stated that it has 450 737’s in its inventory and eventually plans to ramp up production of aircrafts to 31 per month. This is due to slow demand from airline carriers in lieu of Covid-19. Adding to this, Boeing will also lower its headcount, bringing total employees to less than $130,000 by 2021.
In its most recent quarter, the company reported a loss of $466 million. Overall sales declined by 29% and commercial revenue dropped by 56%. This comes as no surprise, given the imposed travel restrictions as cases continue to rise. The return of 737 Max will boost Boeing stock numbers in its upcoming earnings report but the overall impact of the news is still hard to gauge.
The Travel Sector Celebrates The Arrival Of A Covid Vaccine
In addition to the grounding of the 737 Max, Boeing’s bottom line was also impacted by the slow travel season this year. With travel restrictions across the globe, Boeing’s aircrafts saw little to no movement. However, recent events hint at better days ahead. Earlier this month, Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA) announced that its vaccine candidate is more than 90% effective.
The potential recovery of the economy to its pre-pandemic state also implies the return of air travel by the end of next year. All major airlines saw a rally in its stock price following the vaccine news. For Boeing, a vaccine coupled with the return of the MAX will mean a much greater upside for its stock in 2021. However, there are still a lot of questions that remain answered. Most notably, the pace at which the vaccine will be distributed. A swift process will ultimately pave the way for commercial travel. A factor that demand for Boeing’s aircrafts is wholly dependent on.
A second element to consider is what a post-pandemic recovery will look like. For many airlines, it will take months, even years before they recoup all their losses. This also means that demand for Boeing’s aircrafts won’t see an immediate recovery. There will be a lag between the return of travel and demand for aircrafts. Nevertheless, a Covid vaccine is a step in the right direction after months of great uncertainty.
The Bottom Line On Boeing
Boeing has a lot of upsides to look forward to in 2021. But the goods news also comes with an element of uncertainty. The return of the 737 Max did boost investors’ sentiments pushing the stock higher. However, the long-term effects are yet to be seen. The recovery of air travel is in limbo at the moment. On the one hand, cases are on the rise worldwide but on the flip side, a potential vaccine is on the fast-track to approval.
Boeing will face an uphill battle like many of its peers in the travel sector. However, a recovery from the pandemic will happen eventually- even with an unclear timeline. In my opinion, Boeing stock is a worthy investment at its current price but don’t expect returns anytime soon.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.