In two weeks, Boeing Co. (NYSE: BA) will report first-quarter 2020 results. No one expects much, given that the company has not sold a single 737 Max commercial airplane in more than 12 months. By the time April 29 arrives, an awful lot could have changed for the airplane manufacturer.
For one thing, the company could have decided whether to accept federal government aid to help it recover from orders canceled as airlines stop buying new planes because they can’t even fly the ones they already have. Add to that the long-term effects of the grounding of the 737 Max following two fatal crashes that killed 346 people in Indonesia and Ethiopia.
In December, Boeing replaced now-former CEO Dennis Muilenburg with its independent lead director, David Calhoun, who had been a board member since 2009. When the company reported fourth-quarter results in late January, before the COVID-19 pandemic was declared, Calhoun’s main job was to get the 737 Max back in the air and begin recovering from a year of lost sales. His problems are thornier than ever now.
Boeing’s Long Road to Here
Boeing was first incorporated in 1916 as Pacific Aero by William Boeing after he and another engineer built the company’s first seaplane. The U.S. Navy ordered 50 of the seaplanes from the then-renamed Boeing Company in 1917, following the U.S. entry into World War I.
The company’s first commercial airplane was another seaplane, the 6B-1, first sold in 1919. Eight years later, aircraft manufacturing and a fledgling Boeing Air Transport (later to become United Airlines) were combined into a single company that designed and manufactured both military and commercial airplanes and operated an airline.
In 1933, a competitor, Douglas Company, began selling its DC-3 passenger jet, the best-selling plane in aviation history, with more than 10,000 sold, until production ended in the 1950s. Also that year, the company split into three pieces, Boeing, United Air Lines and United Aircraft.
During World War II, Boeing built B-17, B-25 and B-29 bombers for the U.S. Army Air Forces. After the war, Boeing developed and sold its first commercial jet, the 707. Pan American took delivery of the first 707 in 1958. Production ended in 1991, after more than 1,000 of the planes had been delivered.
Boeing’s first 737 made its maiden flight in 1967. Since then, Boeing has taken orders for 14,983 of the single-aisle passenger jet and delivered 10,576 (through March 2020).
Boeing merged with McDonnell Douglas in 1997, giving the combined company strength in commercial and military aircraft, along with expertise in missile and space technology. That merger was a response to the growing competition from Europe’s Airbus, which was founded in 1967 and already had dented Boeing’s customer base with its A300 family of single-aisle competitors to the 737 family. Now, Boeing may be too big to fail.
Recertification Is Job Number 1
On April 16, Boeing announced that its facilities in the Puget Sound region of Washington would begin to reopen on April 20, putting some 27,000 employees back to work. The company’s South Carolina plant will not reopen yet.
Before the COVID-19 lockdowns forced many of its suppliers to slow down and, in Boeing’s case, halt production, the end of the 737 Max recertification process was in sight. The recertification work continues, but the company’s expectation that the plane would be flying again by midyear may not be realized due to the coronavirus outbreak.
The first test flights of the recertification progress were due to take place this month, but whether that will occur as scheduled remains unclear. If these flights haven’t begun by the time Boeing reports earnings on April 29, investors are likely to interpret a nonevent as bad news.
Job Number 2 May Be Even Harder to Achieve
Boeing’s most recent report on orders and deliveries indicates that through the end of March, the company has taken a net negative 314 orders for the 737 Max this year, and Boeing’s backlog for the planes has dipped from 4,407 to 4,079. That’s still a lot of airplanes, but customers may resist being corralled and made to pay for airplanes that they won’t need for months or longer.
According to data from airline fleet watcher Cirium, about 64% (just under 17,000) of the world’s roughly 25,500 commercial jets have not flown for at least a week. Getting all those planes back in the air won’t happen overnight, and until they are all (or mostly all) flying again, airlines are going to want to delay receiving new planes.
That backlog of more than 4,000 737s is deceptive. Travel demand and airline customers are staying away from air travel in droves. Airlines can defer deliveries or even cancel them (for a price).
If jet fuel prices remain at recent levels, airlines have even less incentive to add new models to their fleets. According to the International Air Transport Association (IATA), the global average price for a gallon of jet fuel for the week ended April 9 was $0.614, down 30% month over month and nearly 70% year over year.
The IATA further estimated that worldwide airline revenues would plunge by $252 billion year over year. In a more pessimistic case, the revenue loss could total $314 billion, a drop of 55% compared with 2019. For Boeing this means that it has to decide how to keep cash flowing through its business and to its supply chain until its customers resume new airplane purchases.
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