The 737 MAX crisis
Boeing (BA) desperately needs new orders for its other planes, as orders for its fast-selling single-aisle 737 MAX aircraft have entirely dried up in the wake of the Ethiopian Airlines crash on March 10.
The fatal accident took 157 lives, following which air carriers around the world grounded their 737 MAX fleets. Airline companies have also denied deliveries of the model until the safety concerns are cleared.
The 737 series accounts for ~80% of Boeing’s total airplane shipments and contributes nearly 30% to its overall operating profit. Southwest Airlines (LUV) has ordered 280 Boeing 737 MAX series jets, the highest among all US air carriers. Other US-based airline operators United Airlines (UAL) and American Airlines (AAL) have placed orders for 100 planes each.
Hence, delivery cancellations are hurting Boeing’s cash flows, revenue, and earnings. During the first quarter of 2019, the airplane manufacturer’s deliveries for 737 series jets fell to 89 from 132 in the previous year’s quarter. The company’s first-quarter revenue, operating income, and EPS fell 2%, 21%, and 13%, respectively, year-over-year. Since March 10, Boeing hasn’t delivered a single 737 MAX plane.
Following the Ethiopian Airlines crash, Boeing stock has been under tremendous pressure. Since March 10, the stock has lost 17.5% of its value. Its YTD (year-to-date) gain has eroded to 8.1% from 31% on March 8.
Until March 8, Boeing was the top performer among the Dow 30 stocks. However, it’s now slipped into 17th place. As of June 5, Cisco (CSCO) tops the list with a YTD gain of 26.4%, followed by Visa (V) and Travelers Companies (TRV) with returns of 25.4% and 25.1%, respectively.
The stock has also underperformed the returns of the iShares US Aerospace & Defense ETF (ITA), which has gained 21.6%. The ETF invests in US-based manufacturers, assemblers, and distributors of airplane and defense equipment.