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Why Shares of Boeing Are Up Today

By Lou Whiteman – Oct 16, 2020 at 12:56PM

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A key European regulator says the 737 MAX is safe.

What happened

Shares of Boeing (BA 4.03%) jumped more than 5% at the open on Friday after the company's 737 MAX jet was deemed safe by European regulators. Getting the MAX airborne is a key part of the bull case for Boeing, and the market is applauding a significant step in that direction.

So what

Boeing shares are off nearly 50% year to date, weighed down by issues with the MAX and the COVID-19 pandemic's impact on airlines. The MAX has been grounded since March 2019 after a pair of fatal accidents, but Boeing has been working on software changes designed to address the issues and make the plane safe to fly again.

A Boeing 737 Max on a tug.

Image source: Boeing.

U.S. and international regulators have completed test flights to evaluate the changes. Patrick Ky, executive director of the European Union Aviation Safety Agency, said in an interview Friday that he's satisfied with the changes Boeing has made and that his agency is performing final document reviews ahead of drafting an airworthiness directive next month.

"Our analysis is showing that this is safe, and the level of safety reached is high enough for us," Ky said in an interview with Bloomberg.

The Europeans have been working closely with the U.S. Federal Aviation Administration on their evaluation, and Ky is unlikely to be so optimistic if the FAA had any lingering concerns.

Now what

It's hard to overstate how important getting the MAX recertified is to Boeing's commercial business. The plane accounts for about 75% of Boeing's total order book, and the company burned through nearly $10 billion in the first half of 2020 in large part due to expenses related to the grounding.

That said, investors need to be careful not to get ahead of themselves. Boeing has more than 400 planes parked on its lots awaiting delivery, and with the pandemic weighing on airlines demand for new aircraft is currently at its lowest level in the last decade. Boeing is likely to struggle to ramp up production in 2021, and might never hit its pre-grounding targets for MAX sales.

The worst might soon be over for Boeing, but a full recovery is still years away.

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.

Stocks Mentioned

Boeing Stock Quote
$182.87 (4.03%) $7.09

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