Shares of Boeing (NYSE:BA) and some of its key suppliers reversed course on Friday after a solid week of gains, with some investors apparently taking profits following a multiday rally after lawmakers agreed to provide financial support for the sector and its most important customers.
Boeing shares were down 11% at 11:15 a.m. EDT on Friday, while shares of Spirit AeroSystems Holdings (NYSE:SPR) were down 17%, TransDigm Group (NYSE:TDG) shares were down 10%, and the stock of Heico (NYSE:HEI) was down more than 6%.
Airlines are among the businesses hit hardest by the COVID-19 pandemic, with travel demand drying up as the virus has spread. Carriers have responded by cutting flights and grounding jets, putting pressure not only on Boeing but also on suppliers, as demand for new planes and spare parts to service the existing fleet is expected to wane.
That led to a rally earlier in the week. But the aid package, while substantial, will not undo the damage that is likely to be done by the pandemic, or make demand come back anytime soon. Trading on Friday seems to reflect the sobering reality that even in the best-case scenarios, it's going to take time for the commercial aerospace industry to recover.
The whole sector has been volatile of late. Boeing shares had nearly doubled for the week heading into Friday's trading. And all four of these stocks have lost between 20% and 50% of their value in the last month.
Boeing has liquidity and a Washington backstop. The shares have fallen precipitously, but the company is highly unlikely to end up bankrupt.
This is an iconic American company with a massive portfolio of products that will be around for the foreseeable future, and it is understandable that investors might be looking to bargain-hunt here. I think that's a bad idea, given the uncertainty that lies ahead and the likely slow recovery of the commercial aerospace sector.
The supply chain offers more opportunities right now, especially with the Pentagon and defense contractors pledging to open up the spigots to make sure the commercial aerospace issues don't disrupt defense production. TransDigm and Heico remain two of the better-run companies in the aerospace universe, and for investors with the patience to ride out the current storm, both companies remain intriguing investments.