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Why Shares of Boeing Are Down Today

By Lou Whiteman – May 4, 2020 at 4:14PM

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Fresh signs emerge highlighting the commercial aerospace sector's woes.

What happened

Shares of Boeing (BA -1.82%) were declining again on Monday. There was news in Boeing's supply chain, with two key aerospace partners announcing new rounds of layoffs in response to falling demand. The headlines provided a fresh reminder of the depth of the challenge Boeing is facing. The stock was down 1.42% at the close of trading.

So what

Boeing shares have lost 60% of their value year to date. The COVID-19 pandemic has hit the airline industry hard, which in turn is almost certain to cut into demand for new planes.

In response, Boeing has eliminated its dividend and cut expected aircraft production, and last week raised $25 billion in fresh debt to help it ride out the storm. But even if Boeing is at no risk of collapse, it still faces a long, arduous road ahead.

A Boeing 787 Dreamliner taking off.

Image source: Boeing.

Investors got fresh reminders of how difficult conditions are for aerospace providers on Monday when a pair of key Boeing suppliers announced significant layoffs. General Electric, which makes the engines that power many of Boeing's jets, said it is cutting 13,000 aviation jobs. And Spirit AeroSystems, a onetime Boeing subsidiary that makes the fuselages for planes, is eliminating 1,450 commercial aerospace positions.

Companies don't do layoffs to handle short-term issues. Boeing could also be forced to step up and assist suppliers like Spirit if the downturn lasts years, since the company can ill afford to see key cogs in its complex supply chain taken down by a recession.

Now what

Boeing will survive, but shareholders could be in for a miserable few years, and even a lost decade, while commercial demand flounders. The company has secured control of its destiny via its cost-cutting and fund-raising efforts, but it cannot control cyclical market swings. As GE and Spirit are reminding investors on Monday, there isn't a good reason to buy into commercial aerospace companies right now.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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