Boeing Is in Crisis. You Wouldn't Know It From the Stock

July 18, 2019

By Carlo Versano

On Monday morning, a day after the Wall Street Journal reported that Boeing ($BA) was unlikely to have its grounded 737 MAX fleet back in the skies this year, Boeing shares shed $5 from their Friday close. By Wednesday's close, the stock had recovered ー and then some.

For a company having as bad a year as Boeing, which is still reeling from having lost two 737 MAX jets in the span of five months to crashes that killed 346 people on two continents and led to a global grounding of its workhorse narrow-body, the stock has largely failed to capture the problems engulfing the aerospace giant. Taking dividends into account, Boeing is still up nearly 14 percent year-to-date, not terribly lower than the 19 percent return on the Dow Industrials, of which Boeing is a part.

Al Root, senior special writer for Barron's who has reported extensively on the MAX, told Cheddar in an interview Thursday that while Boeing took a major hit in the aftermath of that second crash of an Ethiopia Airlines jetliner in March (shares had been trading above $420; they're now around $365), the stock has been in "paralysis" for the past several months. "It's almost like Boeing stock has become completely immune to any news," Root said.

That is, of course, the nature of the aircraft manufacturing business ー essentially a duopoly between Airbus and Boeing. Because of the time it takes to build a passenger jet, the lead time needed, and the amount of pilot training required, airlines can't just rip up their Boeing orders and switch to Airbus jets, Root said. "If you wanted to flip your order book, or your strategy as an airline, good luck."

The global airline industry therefore has a vested interest in making sure the MAX flies again, Root said.

Those facts have helped shield Boeing investors from steeper losses, but the company still faces a major credibility crisis. Root said that Boeing has failed to manage the fallout from the MAX crashes. CEO Dennis Muilenburg, perhaps not used to managing public PR crises given Boeing does most of its business with other businesses, was slow to address the flying public's concerns and the company still has not had a "come to Jesus moment" over the accidents, said Root, who likened the situation to "a badly managed recall and death by a thousand cuts."

Despite the public's concerns over the MAX, UBS recently estimated that only 3 to 5 percent of travelers would refuse to ever step foot on the plane again. And a hint of how Boeing may quietly "rebrand" the MAX came when IAG, the British Airways parent, put in a letter of intent to buy 200 of the aircraft. As Root noted, nowhere in IAG's press release did it use the term 'MAX' to refer to the planes it ordered. Rather, the company refers to the planes as 737-8 and 737-10 models ー their technical names.

Perhaps Boeing and its customers are taking President Trump's advice after all.