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Why Shares of Boeing Are Taking Flight Today

By Lou Whiteman – Jun 29, 2020 at 11:43AM

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The FAA has cleared the 737 Max to fly test flights.

What happened

Shares of Boeing (BA -3.39%) gained 7% on Monday morning after the company's long-grounded 737 Max was cleared to begin a series of test flights. Boeing desperately needs to get the plane airborne and resume deliveries to customers, and the safety assessment flights are an important step in that process.

So what

The 737 Max has been grounded since March 2019, with Boeing attempting to revamp the airplane after a pair of fatal crashes. Boeing has missed a number of self-imposed deadlines to get the plane airborne, but it appears to be getting closer.

A 737 Max on a tug.

Image source: Boeing.

The Federal Aviation Administration told congressional staffers over the weekend that it has competed its review of Boeing's changes, clearing the way for flight certification testing to begin.

Even assuming the tests go well, Boeing will not get a quick rubber-stamp approval for airlines to resume flying the 737 Max. The FAA still needs to review new pilot-training standards to help minimize the risk of future accidents, and airlines will have to do retraining and perform maintenance checks before their idled planes take flight.

The company will also need to work out issues identified by foreign regulators. At best it will probably be September, at the earliest, before 737 Max airplanes are used for scheduled service.

Now what

Boeing faces a tough near-term future even with the 737 Max. The COVID-19 pandemic has caused airlines to shrink their schedules and lowered demand for new planes. It will likely take years for airlines to restore capacity to pre-pandemic levels, meaning the commercial aerospace industry is in for an extended down period.

Still, getting the 737 Max flying again is an important piece of Boeing's plan to survive the downturn. The aerospace giant bled through $4.7 billion in the first quarter in large part due to 737 Max-related expenses, including costs associated with the nearly 400 planes built but not yet delivered to customers.

Recertification would allow Boeing to begin to clear out that inventory, which will improve cash flow and stem losses. But Boeing has warned suppliers it does not expect to hit its original 737 Max production goals in 2020, so there is still a lot of work to be done before this company can soar to pre-pandemic highs.

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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