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Why Shares of Boeing Are Higher Today

By Lou Whiteman – Aug 27, 2020 at 10:51AM

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European regulators have scheduled 737 Max test flights.

What happened

Shares of Boeing (BA -6.08%) traded up 5% on Thursday morning based on progress getting its troubled 737 Max flying again and positive sentiment surrounding the airlines. It's been a tough year for Boeing shares, but investors today were focused on the potential for better days ahead.

So what

Boeing has been hit hard by COVID-19, which has caused its airline customers to retrench and slow growth plans. But the company had issues prior to the pandemic, most notably a pair of fatal 737 Max crashes that led to the plane being grounded in March 2019.

The COVID-related issues are going to take years to work out, but Boeing is seemingly making progress getting the 737 Max back in the air. U.S. and Canadian regulators have already done flight tests, and the European Union Aviation Safety Agency (EASA) issued a statement Thursday saying it "has been working steadily" to return the Max to service as soon as possible.

A Boeing 737 Max in flight.

Image source: Boeing.

While there is still work to be done, EASA said it will do Max test flights out of Vancouver, Canada, during the week of Sept. 7. That's an important development, as there were some concerns about the logistics of international regulators performing test flights due to pandemic-related travel restrictions.

Airline stocks were also rallying Thursday, part of a broader market move higher on news about a potential coronavirus quick test and comments from Federal Reserve Chairman Jerome Powell suggesting the central bank is in no hurry to back away from assisting the economy.

Now what

Even if airlines are currently reluctant to add new planes, Boeing desperately needs to get the 737 Max flying again. The company bled through nearly $10 billion in the first half of 2020 in large part due to expenses related to the Max program, and Boeing has more than 400 planes on its property that are awaiting delivery due to the grounding.

Boeing will need time to work down that inventory, but the first step toward making deliveries, getting cash flowing in again, and resuming more-normalized aircraft production is recertification. The company expects to have the Max airborne again in 2020, and the European announcement is a huge milestone in that effort. That was enough to get the shares flying on Thursday.

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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