Boeing will celebrate its 107th year in operation, a massive feat few companies of its ilk can claim. However, the last few years have seen an enormous shift in the company’s public perception, with various international incidents eroding its illustrious reputation.
Perception, the chief tool influencing the market, has landed Boeing’s shareholders in an uncomfortable position. Stock prices fluctuate with every rise and fall of turbulence.
Here’s a look at how the company’s shares have performed over the last few years:
How Boeing is staying in the skies
Boeing’s loss of 32 billion is almost unprecedented, especially considering that they’ve managed to avoid bankruptcy. That’s because the company is part of a unique duopoly, one of only two manufacturers of full-size passenger jets in high demand by airlines. That means it can continue to sell, build, and deliver planes for many years, even with massive and well-documented problems.
“Given the dynamics of their place in the industry and the industry itself, they have the luxury of time,” said Richard Aboulafia, managing director at AeroDynamic Advisory, an aerospace and defense industry consultant. “It’s an industry with the highest possible barriers to entry and very strong demand for its products. But they’ve wasted a lot of that time.”
Boeing (BA), despite its many woes, has a backlog of orders for more than 5,600 commercial jets worth 529 billion. That’s years’ worth of orders. The problem is that Boeing has reduced its pace so much to address quality issues that it can’t make enough planes a year to turn a profit.
“Can the current situation go on forever? No, it can’t,” said Ron Epstein, aerospace analyst for Bank of America. “That being said, they have some leeway. They’re not going to be in trouble tomorrow.”
Soaring debt levels, plunging to junk
Boeing management says it focuses on fixing its well-documented safety and quality issues — like the missing bolts that led to an in-air fuselage blowout in January — rather than projecting when it will return to profitability. However, management says the financial situation is not as dire as many think. “It is important that our people and our stakeholders understand how promising Boeing’s future looks,” CEO Dave Calhoun told investors last month. “Demand across our portfolio remains incredibly strong. Our people are world-class. There’s a lot of work in front of us, but I’m proud of our team and remain fully confident in our future.”
As if Boeing’s problems weren’t already surmountable, quality and safety questions have rattled some flyers’ confidence in its planes, sparked multiple federal probes, and caused significant problems for airline customers. Even before the latest Alaska Air incident caused another plunge in orders, and after one of its best sales years on record last year; Boeing has fallen far behind rival, Airbus, in orders for new jets and deliveries.
From the second quarter of 2019, just after the second fatal crash of a 737 Max led to a 20-month grounding of its best-selling plane, Boeing reported core operating losses totaling $31.9 billion dollars. Net losses in the same period came to $27 billion. According to FactSet, which tracks financial results, this is the only company in the S&P that has lost that much money over the past five years.
The massive losses have resulted in the company’s debt soaring, from $13 billion at the end of 2018 to $48 billion. Boeing was once known for safety and engineering, but critics say an emphasis on profits changed that. Further losses could plunge the company’s debt into junk bond status for the first time. Moody’s Ratings predicts that even with improved financial performance, Boeing’s cash flow will not be enough to cover the $4.3 billion worth of debt due in 2025 and $8 billion due in 2026. According to Moody’s, Boeing will likely have to issue new debt to fund those shortfalls.
When asked about its financial issues, Boeing pointed to comments from CFO Brian West on a recent investors’ call.” We’re committed to managing the balance sheet in a prudent manner with two main objectives,” he said then. “One, prioritize the investment grade rating; and two, allow the factory and supply chain to stabilize for a stronger trajectory as we exit this year.”
Built-in advantages
Boeing has two advantages other companies don’t have.
First, even if all of Boeing’s customers decide to shift from Boeing to Airbus, Airbus has a backlog of more than 8,000 commercial jet orders and is projected to deliver only about 800 planes this year. That years-long wait for plane orders placed today, perhaps as much as ten years, means that airlines that have placed orders with Boeing aren’t likely to cancel.
If a new manufacturer tried to enter the field, developing a competing model to carry passengers worldwide would take years.
Even if customers could get their hands on Airbus jets right away, there are enormous costs for Boeing customers to operate both their existing Boeing jets and a fleet of comparable Airbus planes simultaneously. Airline pilots can only fly the jet on which they are certified; they can’t just switch between competing models. Airlines must also keep an expensive supply of spare parts to service their planes. So once an airline has chosen a plane, like the 737 Max, adding a rival’s version of that jet is very expensive.
After Alaska Air purchased Virgin America in 2016, it got rid of the Airbus jets Virgin was flying and became an all-Boeing airline. “The reason we went single fleet is we had two aircraft types performing the same mission in the Lower 48,” said CEO Ben Minicucci in January, speaking to investors. “It [was] costing us 75 million to 100 million a year operating these dual fleets between pilot training and reserves and maintenance and parts and all that stuff.”
However, even with those built-in advantages, Boeing can only trail Airbus for a while. That’s one reason why the question of who will lead Boeing next is so important. Calhoun, who has led the company since 2020, has announced his intention to retire by the end of the year. He said he has an internal candidate whom he would like to succeed him but whom he has yet to identify. Others think it’s crucial to the company’s future that it goes outside the company to bring in a fresh perspective.
“It’s a long road back; it’s a decade-long process. But changing management is a very good first off-ramp [to current problems],” said Aboulafia. “It’s a question of what the board is thinking.”
Without a turnaround, the lead that Airbus has established in the wake of Boeing’s problems over the last five years could become permanent. Then, the advantages of a duopoly won’t be enough to save Boeing from long-term decline.
“I think you could draw an analogy to (automaker) GM, and the dominant force they once were, and how it’s not that any longer,” said Epstein. “Could they become a much smaller slice of the pie if they don’t do something different? Absolutely. It’s already happening.”
Conclusion
Boeing has long been synonymous with aviation. Despite a rich history spanning over a century, Boeing’s recent failures, scandals, and safety issues have stained its legacy. These issues have had real ramifications for their shareholders, who’ve watched as the share price reacts to each headline. While the situation is dire, Boeing is one of only two jet suppliers, and with pre-orders to the tune of 500 billion, it still needs to be considered too big to fail. While they have a backlog of orders to attend to for the foreseeable future, they’re focused on fixing the issues of the present, which include maintaining the quality and safety standards that customers expect. In the meantime, we’ll have to watch the company’s stocks weather the turbulent storm.
