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Why Shares of Boeing and Its Suppliers Are Up Today

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

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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.

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Stocks Mentioned

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

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