United Airlines Order A Boon For Boeing?

United Airlines (NASDAQ.UAL) recently announced a 200-plane order for Boeing (NYSE. B.A.) 737 MAX aircraft. This announcement raises hopes for a quick rebound in travel demand and reduces MAX’s manufacturing problems concerns. Despite a significant increase in passengers at TSA checkpoints, United Airlines shares and Boeing are still 30% below pre-Covid levels. United Airlines expects to see strong cash generation, aided by increasing passenger demand. Boeing will likely restart MAX production in the second half of the year. Both United Airlines and Boeing had $4 billion and $7.5billion of operating cash outflows last year, respectively (excluding the $11 billion increase of inventories). Still, both companies reported positive cash flow for the first quarter (excluding Boeing’s working capital changes) – which indicates an improvement in operational efficiency and the beneficial impact of government assistance. In an interactive dashboard analysis, The Boeing Company Stock has lost 26% since 2018; we highlight historical trends in revenues, margins, and valuation multiple.

Boeing (NYSE: B.A.) entered into a $2.5 billion agreement with the U.S. Department of Justice in January. This ended a two-year investigation into the 737 Max program. The deal requires Boeing to pay $243 million in penalties, $500 million compensation for the families of those who died in MAX crashes, and $1.77 billion to its customers. The company has $5.5 billion in short-term liabilities arising from customer concessions. Although the recent investor lawsuit is concerning, its ballooning amount of debt stems mainly from its high inventory levels. After the FAA clearance, Southwest’s 100-plane order restores confidence in MAX. The key to a significant upside in the stock is reducing Boeing’s 400+ plane inventory as air travel demand increases. This interactive dashboard analysis compares Boeing’s stock performance in the current crisis to that of 2008’s recession.

Southwest Airlines shares (NYSE: LUV) have risen 20% over the past 21 days to their pre-Covid level. This was due to the second round of payroll support from the U.S. government and an increase in passengers at TSA checkpoints. Interestingly, Southwest is a major Boeing 737 MAX customer. There are a total of 380 aircraft that will be delivered over the next few years. Boeing shares (NYSE: B.A.), despite the lifting of the FAA ban in November 2020, remain 30% below pre-Covid levels. The FAA’s order will require design changes and a revamp of the crew and pilot training programs to fly safely. However, aircraft deliveries are expected to reduce the company’s debt that has ballooned due to its high inventory. Trefis analyzes historical stock price trends for Boeing and MAX customers using an interactive dashboard analysis. BA Stock Has 50% Chance of a Rise Over the Next Month, After Rising 4.3% in The Last 5 Days.

Expedia recently published a travel outlook that stated that air travel would boom in the coming year, with the youngest generation (Millennials and Generation Z) traveling the most. The stock of American Airlines, Southwest Airlines, and United Airlines have gained 27%, 25%, and 20%, respectively, over the past 21 days. On the other hand, Boeing stock has risen by 12%, 10%, and 4% in the past twenty-one, ten, and five-day periods, respectively. According to Boeing’s commercial market outlook for the next 20 years, global passenger traffic will grow by 4% annually, and the aircraft fleet will increase by 3.2%. In the next decade, nearly 56% of new aircraft deliveries will be driven by older aircraft.

Boeing’s long-term debt rose from $10 billion in 2018 and to $62 billion by 2020. This was due to the accumulation of 737 MAX inventory, and capital raises to address any pandemic. The company’s inventories saw a $20 billion increase from $62.5 billion to $82 billion in 2018, to $82 billion by 2020. High inventory levels are responsible for a large portion of the company’s long-term debt. The balance sheet has $25 billion in cash and short-term investments.

The 737 MAX production will resume in the second half of 2019, but the 450 planes stored in the warehouse are expected to supply near-term demand and generate cash flow. Boeing’s 2020 operating cash outflow was $7.5 billion, excluding the $11 billion inventory increase. This is significantly less than the $55 billion drops in stock market capitalization. The key to a significant upside in Boeing stock is the return of MAX production.

Are there better options than Boeing? Boeing Stock Comparison with Peers shows how B.A. compares to peers on essential metrics. Peer Comparisons provide more valuable comparisons.

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Robert Scoble
Robert is the assistant managing editor for HC News, overseeing coverage of markets, companies, strategy and business leaders. Originally from Boston, Scoble began his journalism career in 1997 & now resides outside New York.

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