The one company heading into the coronavirus outbreak in a bad position was Boeing (BA). The passenger airplane manufacturer was already dealing with 737 Max problems and now faces a global economic shutdown and greatly reduced air travel. The stock is down $200 from early 2020 highs, but too many questions still exist to buy the stock on weakness.
Despite all of the problems with the 737 Max and questions of when the airline could finally delivery 100s of parked aircraft, Boeing still had nearly unlimited demand for airplanes due to global travel demand. The company started the year with $10 billion of cash on their balance sheet and a large order book to survive their self-inflicted problems.
The company currently has 5,350 outstanding orders with 4,350 for the 737 Max after facing 41 cancellations in February. Almost every customer in the world is facing a scenario with lower demand and questions regarding funding to where cancelling 737 Max orders is potentially the best option to preserve short-term cash.
For this reason, Boeing has quickly gone from having a massive backlog securing years of production growth to one where a lot of uncertainty exists regarding the end demand for new airplanes. Remember, the company still hasn’t gotten FAA approval to return the 737 Max to circulation yet and the coronavirus is definitely delaying the ability for such occurrence as the current environment isn’t conducive to interaction and testing needed to finish the certification process.
The U.S. Treasury Department earmarked ~$17 billion for Boeing and their supplies due to the virus outbreak, but the airplane manufacturer has been adamant about avoiding government restrictions such as equity stakes. The company is estimated to need up to $20 billion in funding to survive the shutdown due to debt service requirements and the reduced revenues.
The company has hired Lazard and Evercore to pursue funding options. Previously, Boeing took down a $13.8 billion loan facility to provide liquidity due to the ongoing uncertainty with the government aid package.
With airline customers running into unexpected questions over payroll grant terms, shareholders should be skeptical of Boeing obtaining favorable terms from the Treasury department. If any company is least favorably viewed in this global shutdown, it is Boeing following the issues with the 737 Max placing the corporation in an unfavorable position. Most people see the airplane manufacturer as causing their own problems while the airlines such as Southwest Airlines and American Airlines Group were suffering from the lack of new 737 Max deliveries.
The key investor takeaway is that Boeing has far too many questions regarding 737 Max approval, order cancellations due to weakened customers and funding with the questions surrounding government aid. The stock has fallen to $140 from a $340 high this year, but the risk remains far too large to invest in Boeing here.
The stock is likely to offer better investment opportunities in the future when the company is no longer the center of the storm with unknown funding outcomes.
It’s not surprising, then, why investing platform TipRanks ranks Boeing shares an Underperform (i.e. Sell).
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