Boeing Co. is a name that is globally known because most big Airlines have Boeing birds in their fleet. This analysis will skew more towards Boeing (BA: NYSE) as a business and listed stock on the New York Stock Exchange.
Brief history
Founded in 1916 by William Boeing and was registered as Pacific Aero Products Company. It is an American multinational specialized in design manufacture and sale of airplanes, rotor crafts, rockets satellites and missiles globally. Boeing is the 5th largest defense contractor. As at Dec 2018 Boeing Assets were in excess of USD$117 billion. BA is a product of the merger between Mc’Donnell Douglas and Boeing Co in 1997. (Many may be familiar with the aircraft’s Mc’Donnell Douglas manufactured such as the DC10 and DC8 flown by most international carriers). The Boeing company is organised as follows: Boeing Commercial Airplanes, Boeing Defense Space and Security, Boeing Capital, Engineering Operations and Technology and Boeing Shared Services Group.
The US stock markets
Boeing (BA) trades on the NYSE and its stock makes up circa. 10% of the Dow Jones Industry Average (DIJA) of blue chip technology stocks and makes the 25th heaviest stock by market capitalization in the S&P 500 index. The top 25 stocks (BA inclusive) of the S&P 500 form 36% of the US stock markets. See the table below for a decomposition of the DJIA and the S&P 500 weighting of the top 25 stocks of the 500 stocks the index has.
Being a top performer in 2019, BA stock was 22% up on the NYSE as the bullish earnings and a healthy pipeline propelled the heaviest component of the DJIA. The ET302 737 Max 8 crash on 10 March 8 minutes after take-off was a black swan event for the aircraft manufacturer that eroded USD$47 from BA’s share price to USD$375.41 a share in the first two trading days post the ET302 crash. News quickly priced-in the stock as investigators cited possibility of a shared cause with Lion Air crash 5 months earlier in Indonesia, suggesting possible manufacture fault. As if that was not enough, airlines globally, steadily and quickly started to ground their 737 Max 8’s in their fleets with the likes of China and European nations leading the way as the FAA still believed there were not yet any safety concerns until investigation results proved otherwise. Boeing lost another USD$2.11 on every share to USD$373.30 accounting for over half a percentage point (0.56%).
Asset sell off pressure resulting in USD$39 billion hair cut in market cap
However, with news of patch that Boeing will run in the next couple of weeks to address the aircraft nose pointer, BA stock rallied 1.55% to USD$378.99 a share on 15 March. Analysts however question as to whether this will be the solution to the jitteriness Boeing has effected in the market especially that the decision to run the patch comes before results of the exact cause of the plane crash are yet to be finalized. The black box was flown to France on 14 March as the world awaits the cause of the crash. Wall Street analysts were expecting the Boeing 737 Max fit to last three to six months, not weeks. There are currently more than 350 of these jets in global fleets, 74 of which are flown by major U.S. airlines.
The capped stock price reflects investor behavior as clues keep trickling in but one thing for sure is that Boeing stock will continue to be under pressure from potential insurance claims from airlines globally for grounding their fleets, disrupted supply chains from production disruptions and financiers. As soon as investigations point to Boeing claims will overwhelm the aircraft manufacturer in compensation to the 157 families whose loved ones can never be bought with dollars as the lives were too precious.
The weekly loss in BA shares wiped over USD$39 billion in market capitalization.
How contagious was the Boeing Max 8 fever?
The fever was contagious enough to rattle some of the Airlines especially in Asia who are exposed to the Max 8 took a bigger smack losing 3-6% in the wake of the ET302 crash. Korean air lost 3.5%, Jeju Airline lost 3.16% and Tway Air slid 6.6%. United States Airline stocks were mixed with some rallying when others plummeted. This was before all Boeing 737 Max 8’s were grounded.
What is at stake for the Boeing business?
It is vivid that Boeing is embattled with the Max 8 nightmare but more is at stake than just losing USD$39 billion loss in a week on market capitalization. The US giant has over 5,000 Max 8’s on order and with the ET302 crash clients may have to hold on until investigations are finalized. It will need more than a quick 3 week patch to convince the world on flight safety because so far 346 lives have been lost in two disasters 5 months apart. Asset sell off pressure still mounts and Boeing could shave off even more in market capitalization.
Boeings forecasts of USD$111 billion FY2019, representing 10% annual growth could be a pipe dream after all. The 52 aircraft’s per month could be in the balance. Airlines could have alternative preferences.
Massive uncertainty grips Boeing, its suppliers and partners. The world is looking for safety more than anything else. Airline manufacturers should be in the business of selling safety 100%.
Mutisunge Zulu is an economics and finance expert.
