737 MAX Deliveries Improve Boeing's First Quarter

Wide-moat-rated Boeing BA reported improvement in the first quarter, as 737 MAX deliveries resumed and allowed the firm to materially reduce operating losses. Sales decreased 10%, but the firm got materially closer to break-even due to a mix shift toward the 737 MAX at Boeing commercial and a lack of a KC-46a tanker charge at Boeing defense. Net loss per share was comparable to the prior year, $0.92 in 2021 versus $1.11 in 2020, due to higher interest expense and lower income tax benefit. We're maintaining our $257 per share fair value estimate, as the time value of money was offset by our reduced estimates for 737 MAX deliveries (due to electrical issues) and 787 margins due to lower production. Boeing delivered 63 737 aircraft in the quarter, as the firm works to reduce its roughly 400-unit inventory for the aircraft. The 737 has returned to service in most Western nations but remains grounded in China, which is a particularly critical market because aviation is recovering quickly there as the pandemic wanes, and management anticipates it will represent 25% of global growth over the next decade. Management anticipates that the 737 MAX will receive regulatory approval to resume operations in China in the second half of 2021, and we think this will be a major swing factor for the ramp-up rate for the 737 MAX, as a large proportion of the 737 MAX backlog is for Chinese customers. Cumulative firm orders for the 737 program increased by 21 units to 10,785 aircraft. MAX deliveries have been paused because of an electrical wiring issue, but to our understanding, this is an issue affecting only part of the 737 MAX inventory and is a substantially lower risk to the firm than the error that caused the 737 MAX grounding. Wide-body deliveries decreased to 14 aircraft from 45 in the first quarter of 2020 due to 787 production issues that prevented aircraft delivery for most of the quarter. We're anticipating 787 deliveries will improve in subsequent quarters.

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