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Why Shares of Boeing Lost Nearly Half Their Value in March

By Lou Whiteman - Apr 1, 2020 at 4:58PM

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Is the commercial aerospace up-cycle over?

What happened

Boeing (BA 5.64%) was already a bit of a mess heading into March, weighed down by the continued grounding of its 737 MAX aircraft. A dramatic decline in travel prompted by the COVID-19 coronavirus pandemic gave investors a lot more to worry about in March, sending the company's shares down 45.8% for the month, according to data from S&P Global Market Intelligence.

So what

Boeing has been struggling to fly straight since the March 2019 grounding of the 737 MAX following a pair of fatal accidents involving the plane. The post-crash investigations have revealed a lot of embarrassing details about internal operations at Boeing and caused the company to replace its CEO. But throughout it all, bulls have been reassured by the plane's 4,000-plus backlog and the overall strength of Boeing's commercial operations.

A Boeing Dreamliner 787-10 in flight.

Image source: Boeing.

The pandemic is causing investors to rethink Boeing's long-term sales projections. Airlines have reacted to plummeting demand for travel by cutting flights and grounding planes, and even if demand returns when the pandemic is contained, the U.S. economy might by then be in a recession. Some of the planes large airlines are grounding today are unlikely to ever fly again, and if demand doesn't return quickly, the carriers are unlikely to need all of the Boeing jets they have on order.

Boeing shares were actually down nearly 70% mid-month after the company suspended its dividend, but climbed back somewhat after lawmakers passed a $2 trillion economic stimulus package. The legislation contained more than $15 billion in aid available for Boeing and its suppliers, as well as $50 billion for its airline customers. That lessened the near-term risk of bankruptcies rippling through Boeing's supply chain or customer list.

Now what

Boeing lost another 12% on the first day of April, a reminder that just because the calendar changed, the issues weighing on the stock have not vanished. It is going to be tough to know the extent of the damage to Boeing until the pandemic is contained and airlines get a feel for whether demand is recovering, but commercial aerospace has historically been a cyclical business and it appears after an extended strong run the cycle has turned.

Shares of Boeing are considerably less expensive than they were in late February, and the company remains optimistic the 737 MAX will be cleared to return to the skies by mid-year. But Boeing remains a troubled company with a reputation in need of repair and uncertain demand over the next 18 months for its key products.

Even after the sell-off, I'd avoid buying Boeing shares.

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