Boeing (NYSE:BA) shareholders have endured a miserable year, with the stock losing about half of its value in 2020 due to pandemic-related fears and issues with one of its most important aircraft.
The company has an impressive portfolio of assets and is unlikely to remain down forever. Yet the challenges Boeing faces aren't easily solved.
Here's a look at the near-term outlook for Boeing to try to figure out what the company might look like a year from now.
The 737 MAX should be airborne again...
Boeing's troubles date back to the March 2019 grounding of the 737 MAX following a pair of fatal accidents. The plane has not yet been recertified to fly, and it's costing Boeing millions per day.
Boeing has burnt through more than $15 billion in the first nine months of 2020 thanks in large part to costs associated with keeping the 737 supply chain afloat and customers happy, as well as maintaining the more than 400 planes that have been built but not yet delivered during the grounding.
After a series of missed internal deadlines, it appears the 737 MAX will fly before year's end. That's pivotal to the bull case for Boeing, because as deliveries resume, some of the expenses will go away and Boeing will begin to generate cash from the airplane again.
But even after the plane is flying again, it might never be the best-seller Boeing had originally hoped it would be. Prior to the grounding, Boeing had hoped to be manufacturing more than 55 737 MAX planes per month by now. But the company will make fewer than 80 in all of 2020 and currently expects production to gradually ramp up to 31 per month by the beginning of 2022.
...But it will still be a tough market for airplane sales
While the 737 MAX wounded Boeing, it was COVID-19 that really sunk the stock. Airlines have been among the sectors hardest-hit by the pandemic, and it will be years before carriers are focused on growth again.
Boeing is preparing for the worst. The company has slashed its 10-year demand forecast, cut production plans, and is consolidating production of its once hot-selling Dreamliner to one facility. Boeing intends to shed more than 30,000 employees by the end of 2021, nearly 20% of its total headcount heading into 2020.
Even as demand returns, Boeing's lineup is not well suited for what airlines are likely to want to buy. With smaller planes expected to be the focus through the middle part of the decade, archrival Airbus (OTC:EADSY) should do well selling the 100- to 150-seat A220, a plane it acquired from Bombardier in 2018.
Boeing's plan to counter the A220, buying control of the commercial operation of Embraer and gaining access to Embraer's similarly sized E2 jet, fell apart in the early days of the pandemic. The company's sales team will instead have to push the 737 MAX -- which is larger and more expensive -- and will be trying to rebound from post-grounding reputational damage.
Where will Boeing be in November 2021?
If nothing else, we know Boeing will be around a year from now. That sounds glib, but before the company raised $25 billion to shore up its liquidity back in April, there was some reason for concern. We also know, based on Boeing's own forecast and production revisions, that the business will not have recovered in a year's time.
For investors, the question is whether Boeing will be far enough along in a recovery a year from now to make the stock worth buying into. I doubt that will be the case.
Boeing doesn't expect free cash flow to turn positive before 2022, a testament to how long it expects it to take to work through its 737 MAX inventory and for production to begin to normalize. The company also has more than $60 billion in debt, nearly six times what it had just a few years ago. Its defense business will help cushion the blow from commercial, but Boeing cannot return to its pre-pandemic size and strength until commercial is doing much of the heavy lifting.
In a year's time, Boeing will likely be slightly better off than it is right now, still in the early days of a multiyear recovery. For those interested in investing in an eventual airline and commercial aerospace recovery, there are better options than Boeing right now.