Image: Boeing’s shares have been quite volatile the past couple years.
By Brian Nelson, CFA
On January 6, Boeing (BA) received some more bad news. Part of a fuselage installed on one of its new eight-week old 737 Max 9 aircraft blew out on an Alaska Airlines (ALK) flight. There were no reported injuries because of the mishap, but understandably passengers were undoubtedly shaken up. Some posted videos of the experience.
Boeing had been working hard to get back on track with customer perception of the safety of its 737 MAX line-up, and we view the incident as yet another hiccup in the firm’s relations with the public. Key Boeing supplier Spirit AeroSystems (SPR) installed the part on the brand-new aircraft, and an investigation remains ongoing as 737-9 aircraft are grounded until inspections on these aircraft can be completed.
Boeing’s response to the event didn’t have many more details to share:
Safety is our top priority and we deeply regret the impact this event has had on our customers and their passengers. We agree with and fully support the FAA’s decision to require immediate inspections of 737-9 airplanes with the same configuration as the affected airplane. In addition, a Boeing technical team is supporting the NTSB’s investigation into last night’s event. We will remain in close contact with our regulator and customers.
At a time when consumers need more certainty that Boeing’s 737 MAX product line-up is sound after the tragic loss of life on two previous flights (a Lion Air flight crashed in 2018 killing 189 people, while an Ethiopian Airlines flight crashed in 2019 killing 157 people), the news is troubling and indicates that Boeing and its supply chain still have more work to do to make sure that its 737 MAX line-up is absolutely 100% safe for customers.
That said, we do not expect Boeing’s production and delivery schedule to change much at all following the bad news. Boeing continues to work hard to return to meaningful free cash flow generation, and our fair value estimate remains unchanged at this time. Boeing used to be a newsletter portfolio holding years ago, but today, our favorite two plays with respect to aerospace exposure are Lockheed Martin (LMT) and Honeywell (HON).
NOW READ: Lockheed Martin Represents Key Aerospace & Defense Exposure
NOW READ: Honeywell Raises Outlook for 2023; Backlog Remains Strong
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, QQQ, SCHG, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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