Boeing Has to Prove Its Value

Aircraft-maker Boeing (NYSE:BA) has been one of the juggernauts of the American and worldwide aviation industry. However, the past few years have been tough for the company due to its short-sighted management and the debacle of the 737 MAX plane.

image of a Boeing (BA) 737 max aircraft
Source: Marco Menezes /

Adding to its woes, the novel-coronavirus pandemic damaged the world’s economy last year. As a result of these factors, Boeing stock is down 35% in the last year and is one of the more volatile investments in the aerospace industry.

It appears that Boeing’s shares have been rebounding in the past few months or so. In the last three months, analysts’ average price target for the stock has increased by 30.7%. Additionally, the shares are trading almost 7% lower than the analysts’ mean price target.

Many expect Boeing’s performance to improve in 2021 as it resumes delivering its 737 aircraft and the economy strengthens. However, Boeing has a lot on its plate. Among the biggest issues the company will have to tackle are its leadership, which suffers from a lack of vision, and its distressed financial position. Let’s dive a little deeper into its troubles.

Boeing’s Financial Position Is Worrisome

Boeing’s finances are in disarray, reeling from the double whammy of the global pandemic and the grounding of the 737 MAX. The first nine months of 2020 were brutal for the company, as its  revenues tumbled $15.8 billion year-over-year.

That resulted in a net loss of $4.7 billion for the year. Its cash-flow situation looks even more unsightly, with total cash outflows of $14.4 billion in the nine months of last year. As a result, its free cash flow margin is -29.5% compared to the five-year median of 8.4%.

Boeing currently has roughly $10.6 billion of cash and cash equivalents. The company has been focused on its optics rather than strengthening its operations. It decided not to accept federal bailout money, opting instead for a $25 billion bond sale. By turning to the credit markets, it has put further pressure on its finances.  However, even before the bond sale, its debt had tripled in the past couple of years.

Its debt balance now stands at $70 billion, with its one-year debt-to-growth ratio standing at a whopping 250%. With its precarious financial position, it must consider selling stock to replenish its cash reserves.

Nevertheless, it announced a $20 million share buyback plan in December and plans to raise its dividends by 20%.

The Slow Recovery of Travel Demand

The Covid-19 pandemic has crushed international travel, causing the demand for airplanes to sink. Everyone agrees that the travel sector cannot recover until vaccines are widely distributed. Wall Street analysts believe that America’s vaccine-dissemination efforts will cause air travel to substantially increase by Q2. However, it will take significantly longer for travel to recover to its 2019 levels.

That will be a hard blow for Boeing, as demand for its wide-body airplanes such as the 787 Dreamliner will likely be anemic. The Dreamliner has been Boeing’s saving grace since the 737 MAX crisis.

Moreover, the company is also pushing the debut of the latest version of its  777 aircraft back by a year.  And it plans to cease production of the 747 and recently announced that it was closing two assembly lines for the 787. Its goal is to produce eight 787s per month, down from its previous  14 per month.

Additionally, Boeing lowered its total ten-year delivery forecast by 10.7%, but airlines’ fleets are expected to nearly double over the next 20 years. However, it will take a long time before  the industry recovers meaningfully.

The Bottom Line on Boeing Stock

Boeing had a rough time in 2020 and is hoping for a comeback this year. However, with the slow recovery in travel demand and its worrying lack of financial flexibility, things look grim at this point. The cherry on top is its management which is fixated on optics rather than understanding the company’s financial positioning.

Still, there are signs which indicate that the airplane maker will perform significantly better in 2021. Investors, however, should employ a wait-and-see approach with Boeing stock at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article

Article printed from InvestorPlace Media,

©2021 InvestorPlace Media, LLC