Boeing (BA) is facing the worldwide grounding of its 737 Max series planes after the said model jet crashed twice in less than five months. Air carriers across the globe have denied taking delivery of 737 Max jets.
Therefore, several brokerage firms have lowered their 737 Max delivery forecast for the year. Cowen and Company cut its shipment projections for the model to 500 aircraft from 630 jets anticipated earlier. Similarly, Jefferies now predicts Boeing to ship 497 737 Max aircraft, down from 580 units it projected previously.
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As a result of frozen deliveries, Boeing on April 5 announced cutting its monthly output of 737 Max series planes by 19% to 42 units from 52 units. The output cut means that the company is likely to miss its 2019 delivery target of shipping 895–905 aircraft.
Last year, the company delivered a record 806 jets, 580 of which were 737 Max series planes. The 737 series planes account for ~80% of the company’s total aircraft orders and contribute one-third to the total operating profit. Delays or delivery cancellations could hurt the company’s revenues and cash flows. Currently, Boeing has nearly 4,600 backlog orders for its 737 Max series planes worth over $550 billion.
Almost every major airline company (IYT) in the world has orders for Boeing’s 737 Max jets including Southwest Airlines (LUV), American Airlines (AAL), and United Airlines (UAL). While Southwest has ordered 280 aircraft, American and United have placed orders for 100 jets each.
Several analysts downgraded their ratings and target price on Boeing stock after the Ethiopia crash on March 10. Among the 26 analysts covering Boeing, six recommended a “strong buy,” 12 recommended a “buy,” six recommended a “hold,” and the remaining two recommended a “strong sell.”
The air defense contractor stock saw its first “sell” rating in the last 20 months. The average target price on the stock has fallen to $428.10 from $443.75 on March 10.