What happened
Shares of Boeing (BA 0.25%) fell nearly 5% on Tuesday after a key airline customer said it could stall plane deliveries if travel demand does not quickly recover.
So what
Boeing's issues predate the COVID-19 coronavirus, as the company has been scrambling to return its 737 Max to service after its March 2019 grounding. The company is hoping to win regulatory recertification for the plane by the second half of 2020, but recent events are leading to questions about what the near-term demand for the plane will be once it is flying again.
Image source: Boeing.
The airlines have been hit hard by a COVID-19 coronavirus-caused slump in travel demand, and are aggressively cutting back flights in order to conserve cash and navigate through the storm. Fewer flights mean they need fewer planes, and some airlines have already announced plans to at least temporarily ground some of their aircraft.
Speaking at an investment conference on Tuesday, Southwest Airlines management said that if demand does not recover, it will keep its options open when it comes to the 737 Max. That could mean slowing or even deferring some orders.
Southwest Airlines is one of the largest Max customers, with 310 planes on order.
Now what
In one sense, the travel slowdown is good for Boeing, because it buys the company more time to work out the issues with the 737 Max without its airline customers demanding additional capacity as soon as possible. But the aerospace giant has hundreds of manufactured but undelivered airplanes spread all over its campus and will be desperate to monetize those airframes as quickly as possible when the grounding is finally lifted.
If the travel slowdown is prolonged, Boeing is going to need longer than hoped to get back to normal operations even if the 737 Max is recertified as scheduled, and the company may never reach its monthly output goals for the plane if airline demand wanes. The coronavirus has only added to the risk and uncertainty surrounding the 737 Max.
