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Boeing's Quarter Raised New Questions, Provided Few Answers

By Lou Whiteman - Feb 11, 2021 at 9:05AM

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The 737 MAX is back, but the company's larger planes are still having issues.

Boeing (BA 3.52%) has flown through a lot of turbulence in recent years. First, its 737 MAX was grounded after a pair of fatal accidents. More recently, the COVID-19 pandemic has sent the airline industry into a tailspin and eroded demand for new planes. 

In this video from Motley Fool Liverecorded on Feb. 4, Industry Focus host Nick Sciple and Motley Fool contributor Lou Whiteman provide an update on the company and discuss the challenges it faces in the quarters ahead.

Nick Sciple: We talk about maybe [laughs] some spats with the government and some bad news surrounding a business, I think that has described Boeing over the past couple of years for sure. What's going on with Boeing lately?

Lou Whiteman: The good news is we're not going to talk about problems with the 737 MAX. The bad news is we're going to talk about problems with the 777X which is a new version of their largest plane, this is their across-the-ocean international plane. It was delayed even prior to the 737 MAX. It was supposed to be flying by now. But now, post 737 MAX, with all the issues that that uncovered, the regulatory scrutiny to get this thing certified is going to be all the more intense. Now, Boeing, just in the last few weeks, has said it's not going to be 2022 when it's flying as they hoped, they're hoping for late 2023 which is just light-years for this industry. More to the point, this is turning into a real albatross of a program, this is not the plane that airlines need right now. It is the biggest thing Boeing offers, it's focused on international flights at a time where we're not seeing international flights, and this is a huge, huge deal for Boeing that they've invested billions and billions in, and suddenly, there's real concern about when it's coming out and how it will sell.

Sciple: Give me some good news for Boeing. Because it seems like just over the past couple of years, there's just not a lot, there's just more bad news every day, it seems like. What's the positive spin? What's the light at the end of the tunnel for this company?

Whiteman: I'm going to answer this actually by doubling down with the bad news. [laughs] One of the things that we really have to watch with the 777X right now is that Boeing, in its annual report, reduced its order book by about one-third. Now, that's mostly an accounting thing. That's because it's going to be so late, some of its customers can back out of these deals and so they cannot count it as a firm deal anymore. It doesn't mean they will back out. Chances are they will see some cancellations. The good news here is that it might just save the Dreamliner program, which Boeing has also had to cut back on. The Dreamliner is a smaller version of this. It's still made for international flying but it doesn't have all of the seats, it's a little easier to operate in this environment, probably in the environment we're going to see. The Dreamliner is arguably a more important program for Boeing, and while they do not want to see the 777X end up as just a disaster, they would rather salvage the Dreamliner. We have the Dreamliner, hopefully, on the rebound, the 737 MAX is flying, airlines on their fourth-quarter call, they talked about passengers aren't pushing back. We're going to see cash burn, hopefully, slow if not go positive in 2021 with the MAX. The worst is over but it's really hard to say, there's not a lot to throw a party about right now.

Sciple: I can hear a lot of folks saying, "Well, airline travel is going to come back with the vaccine and maybe that's going to snapback demand for aircraft," but with the nature of this business, there's a lag in how that plays out.

Whiteman: Especially in this situation when the airlines had to take on so much debt for them to just survive. Yes, I think there's going to be a rebound, but that rebound is largely going to be on the backs of existing metal and maybe there's a lot of planes you can get on the cheap right now. I think it's hard to make the case. We will see new plane sales because a lot of these contracts, you can't wave a lot of. I think it's hard to make the case that we will see new plane sales for either Boeing or Airbus (EADSY 2.84%) accelerating within the next even five-year period, just as the airlines lick their wounds and try to get back to normal.

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