Revisiting Boeing Stock’s Long Term Outlook

Advancement in vaccine development and new therapeutics have lifted broader markets, but tepid air travel demand continues to weigh on Boeing (NYSE: BA). In the third-quarter earnings report, the company reduced the 10-year commercial market deliveries by 11% to 17,000 aircraft – a level envisaged in 2017. As passenger traffic continues to remain low despite rapid pre-flight testing initiatives and stringent safety measures, the company expects passenger traffic to return to pre-Covid levels by 2023. Thus, grim near-term demand coupled with a falling production rate will weigh on Boeing in the long run. Trefis highlights the key drivers of Boeing’s Valuation in an interactive dashboard analysis.

787 quality issues are another blow after 737 MAX groundings

The company’s commercial airplanes segment manufactures 737, 747, 767, 777, and 787 class of aircraft. Per recent filings, the segment’s order backlog of 4,300 commercial airplanes included 3,300 737s, 349 777s, and 470 787s. In 2018, Boeing delivered 806 commercial airplanes with 580 737s and 145 787s. In 2020, the production rate further stalled due to the coronavirus crisis and recently from 787 defects.

The company has delivered just 98 planes this year and expects to ramp-up 737 MAX production to 31 per month by 2022. With expectations of 787, 767, and 777 production rates of 6, 3, and 2 per month, respectively, the total deliveries will remain relatively flat next year. Thus, mounting operating losses will be a concern even in 2021.

Huge debt and surmounting losses resulting in facility closures

Since the grounding of the 737 MAX, Boeing’s inventories have soared from $65 billion in Q1’19 to $87 billion in Q3’20, primarily from the 450 737 MAX planes in its warehouse. To cover cash shortfall from the $22 billion inventory pile up, the company raised $25 billion in a bond offering – widening the long-term debt to $57 billion by Q3’20. Moreover, the operating cash outflow this year has reached a large $14 billion – prompting voluntary layoffs and facility closures. Therefore, the stock faces a sizable downside risk until air traffic rebounds and the production rate improves.

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