Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Boeing and Its Suppliers Are Up Today

By Lou Whiteman – Updated May 7, 2020 at 3:46PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some in the industry believe we've reached the bottom in air travel demand.

What happened

Shares of Boeing (BA 5.32%) and some of the company's beaten-down suppliers got a boost Thursday on an overall positive day for market sentiment. Fresh earnings reports have given investors reason to believe airline customers will be able to weather the COVID-19 pandemic and have reassured skeptics about the health of the supply chain.

Boeing was up 6.2% as of Thursday afternoon, while shares of Triumph Group (TGI 5.14%) were up 15% and Spirit AeroSystems (SPR 7.69%) shares were up 8%.

So what

Boeing has been under pressure for months now due to the perceived vulnerability of its massive 4,000-plane-strong order book. The pandemic has wiped out demand for air travel, causing airlines to shift focus from growth to survival. That means cutting or deferring orders for new planes, and with much of the global fleet grounded, less demand for spare parts as well.

Spirit, a onetime Boeing subsidiary, still relies on Boeing and Airbus for a bulk of its revenue and was already struggling due to the grounding of Boeing's 737 Max aircraft. Triumph, a maker of smaller, specialty components, was in the early stages of a turnaround heading into this crisis and can ill afford an extended down period. All three companies have announced layoffs and other efforts to preserve cash, but there are questions about whether those steps will be enough if demand remains muted.

An airplane assembly line.

Image source: Getty Images.

Triumph hasn't yet announced when its next earnings release will be, but the stock is likely getting a boost from investors seeing Boeing's continued efforts to work with suppliers like Spirit.

The stocks could also be getting a boost from comments by JetBlue Airways suggesting that demand might have bottomed out in mid-April. That doesn't mean a quick recovery, it would be a lot better than the alternative.

Now what

Even with Thursday's gains, these stocks have all lost more than half of their value so far in 2020, and with good reason.

Airlines are not going to be in a position to buy new planes for years, and the entire industry is going to be forced to deal with depressed production volumes for a significant time. Boeing is going to keep bleeding cash until the 737 Max is returned to service, at the earliest, and that day is not coming before the third quarter.

BA Chart

BA, SPR, TGI data by YCharts.

The suppliers are going to be breakeven at best likely until 2022, when hopefully Boeing's 737 Max production will be ramping up again. With Boeing unwilling to see major components of its supply chain in disarray, chances are high the company will help backstop losses. But it is unlikely that help will translate into growth or boosted profits.

There is growing reason to believe these businesses will survive, and so perhaps the stocks are finally nearing a bottom. But there still isn't much of a reason to buy into Boeing or these suppliers for the foreseeable future.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
BA
$132.75 (5.32%) $6.71
Spirit AeroSystems Holdings, Inc. Stock Quote
Spirit AeroSystems Holdings, Inc.
SPR
$24.65 (7.69%) $1.76
Triumph Group, Inc. Stock Quote
Triumph Group, Inc.
TGI
$9.62 (5.14%) $0.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.