What happened
Shares of Boeing (BA -2.87%) climbed 5.9% in pre-market trading Wednesday after the Federal Aviation Administration cleared the company's troubled 737 MAX to return to service. That's a big milestone for the aerospace giant, but only one small step in what will likely be a multiyear recovery for the stock.
So what
The 737 MAX was grounded in March 2019 after a second fatal accident involving the plane. Investigators in the months that followed placed the blame on Boeing software designed to keep the plane stable in flight, and ordered a series of changes.
Image source: Boeing.
Twenty months after the initial grounding, the FAA on Wednesday declared the plane safe to fly. With the recertification the 737 MAX could be used on passenger flights before year-end, though most airlines will need time to work the plane back into their schedules.
The recertification gives Boeing the green light to begin moving the more than 400 planes built but not delivered during the grounding. That should help the company, which bled through more than $15 billion in the first nine months of 2020, to stem losses and increase the cash coming in.
With airlines cutting back on their flights due to the pandemic it is a difficult time to move airplanes. But Boeing is in talks with key customers including Southwest Airlines and should be able to work through its inventory over the next year.
Now what
This is an important moment for Boeing, but investors should be careful not to get ahead of themselves. The pandemic has taken a significant toll on airline customers, and aviation is unlikely to normalize to pre-pandemic levels for years. Boeing has cut its forecast for airplane demand due to COVID-19, with a rebound not expected until the second half of the 20-year forecast period.
Boeing has seen its order book fall during in 2020, and is cutting production of all commercial models. The company doesn't expects the 737 MAX to ramp up to more than 30 airframes per month until 2022. Prior to the grounding, Boeing had hoped to be manufacturing more than 50 MAX planes per month by now.
After a long wait the 737 MAX has been cleared for takeoff. That's the good news, but investors going along for the ride should buckle up and prepare for a long journey ahead.
