Boeing's 737 MAX Can Return to Service in the U.S.
This is a critical step in our bullish thesis on Boeing, but it’s only the first in a series of steps in the company’s turnaround.
On Nov. 18, the U.S. Federal Aviation Administration rescinded the emergency order that grounded Boeing’s (BA) 737 MAX in March 2019, paving the way for its reintroduction into U.S. operations and the resumption of deliveries to U.S. customers. This is a critical step in our bullish thesis on Boeing, but it’s only the first in a series of steps in the company’s turnaround. We maintain our $260 per share fair value estimate and do not see a compelling margin of safety in shares at current prices.
While the resumption of U.S. 737 MAX deliveries is a critical step, aircraft are sold globally, and the plane remains grounded in Europe and China, the two other major aviation markets. We’ve seen optimistic news out of Europe that the MAX is well on its way to returning to service and may receive authorization to resume operations by the end of the year. We are unsure of its progress in China, and we worry that it might be used as a tool in the escalating tensions between the U.S. and Chinese governments. That noted, we are encouraged by the coming change in the U.S. government and think the new administration may have a less combative trade policy, which we think increases the chance of Chinese recertification. Broadly, our fair value assumes that the MAX returns to service globally in relatively short order and that Boeing can deliver aircraft outside of China in the meantime.
Looking forward, we see several longer-term steps in Boeing’s turnaround. First, we believe there is substantial operational risk in Boeing’s plans to simultaneously ramp up production of the 737 MAX and sell the 450 MAX aircraft in storage during the current aviation crisis brought on by the pandemic. Second, Boeing needs a postpandemic boom in air traffic and a resumption of 737 MAX orders to rebuild its backlog. Finally, Boeing needs to ramp production beyond its previous peak of 52 per month, which we think would generate the free cash flow necessary to service debt.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Burkett Huey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.