Boeing looks to be in more trouble as the company’s stock sank following confirmation that it is shutting down production of its 737 Max range.
Dec. 17, 2019
The world’s largest airplane manufacturer, Boeing (NYSE: BA), saw its stock fall more than 4% on Monday following reports that Boeing 737 Max production will halt in January. Boeing has experienced a lot of turbulence over the past 14 months since the first of two 737 Max crashes, which claimed a total of 346 lives, and the shutdown could be a huge blow.
Boeing’s stock price has dropped more than 25% since March highs and is now trading at around $330.
Why does the 737 Max matter so much?
Boeing has been locked in a struggle with arch-rival, Airbus (EPA: AIR), for supremacy of the aerospace market. The former has just about managed to keep hold of its title as the world’s biggest manufacturer. However, should this trend continue, and with Max production to be halted, this title could be under serious threat.
The 737 Max range represents tens of billions of dollars in annual sales for Boeing and is its most important product. As well as this, costs will mount further with the halt in production as 12,000 737 Max workers will require reallocation and airlines will need to be compensated for the sudden cancellation. In the first 9 months of the year, the 737 Max has already cost Boeing close to $10 billion in losses.
Looking outward, the effects of such a shutdown will be felt across the U.S. as Boeing is the country’s largest manufacturing exporter, outstripping even the likes of Apple (NASDAQ: AAPL) and Ford Motors (NYSE: F).
Boeing’s stock will recover
Nobody is suggesting that shutting down Max production will end the company, but it will no doubt hurt its reputation, as well as revenue. Any Boeing investors will need to be aware of three key factors:
1. There will be more headaches moving forward regardless such as the aforementioned cost of reallocating employees and compensating airlines, as such a big mess will need a lot of cleanup. So no matter when or how the 737 debacle passes, the return to the top will be slow.
2. Boeing has been lucky not to be passed out by Airbus, mostly due to the latter’s own failure to capitalize on the situation. Smaller airlines like Safran (EPA: SAF) and Cessna will also look to take advantage of the giant’s troubles.
3. Finally, Boeing will recover. It still has a strong operational performance as well as some lucrative defense contracts which could cover a large chunk of the 737 losses throughout the year.
It is not quite time for investors to hit the panic button yet.
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