Shares of Boeing (NYSE:BA) fell more than 5% on Tuesday as investors continue to try to calculate how much damage the COVID-19 pandemic will do to commercial aircraft order books. Boeing's commercial arm accounts for two-thirds of total revenue, and the company is sure to take a sustained hit if demand for new planes falters.
Boeing shares have lost more than half their value since March 1, pulled down along with airline stocks as the pandemic has brought travel to a halt. Even after the pandemic is contained air travel is unlikely to return quickly, which is causing airlines to ground planes and cut capital expenditures.
We've already seen some evidence that Boeing's order book will take a hit, with airplane leasing giant Avolon earlier this month canceling orders for 75 737 Max planes. With each passing day we are seeing fresh evidence to suggest there will be a glut of used jets on the open market whenever airlines decide the time is right to expand again.
Virgin Australia, which operates a fleet of large aircraft including five Boeing 777-300s, on Tuesday became perhaps the highest-profile global airline to seek a court-assisted restructuring.
Monday's historic drop in crude oil prices only makes the outlook for new plane sales more dire, as fuel efficiency is one of the major selling points Boeing uses in convincing airlines to dump their older jets for newer models. Given the lack of demand for the foreseeable future, coupled with low jet fuel prices, airlines appear likely to be flying around with a lot of small, used aircraft instead of pricey new planes.
Boeing is a massive company with a collection of impressive commercial and defense assets, and the government is highly likely to step in and prop the company up in a worst-case scenario. With all that in mind, the 50% drop in share price is likely overdone.
That said, there is little on the horizon that appears likely to be a catalyst to push the shares higher, and Boeing was dealing with a number of issues even before the pandemic struck. Investors should avoid the temptation to buy despite the declining stock price. There are a lot of better positioned aerospace contractors that have also seen their stocks fall due to the pandemic to consider instead.