What happened
After two tough years weathering issues with some of its most important aircraft and a fall in demand due to the pandemic, Boeing (BA 0.73%) is finally showing signs that it is returning to business as usual. That helped propel the stock higher in March, with the shares up 20.1% for the month, according to data provided by S&P Global Market Intelligence.
So what
Boeing has been flying through turbulence for a while now. The company's mainstay 737 MAX was grounded in March 2019 after a pair of fatal accidents, and in recent months it has had to halt deliveries of its 787 Dreamliner as well. The issues have caused free cash flow to dry up, but given airlines had to switch into survival mode to make it through the pandemic there hasn't been much demand for new jets anyway.
Image source: Boeing.
At long last those storm clouds are beginning to clear. The MAX was recertified last fall, and as the vaccine rollout gains momentum, demand for air travel is beginning to rebound.
Boeing shares rallied in March on word Dreamliner deliveries were set to begin before the end of the month. The company is satisfied it has worked through potential issues with the plane's carbon fiber skin. The 737 MAX rehabilitation program also hit an important milestone when longtime Boeing customer Southwest Airlines inked a deal to buy an additional 100 jets, an important endorsement of the plane.
Now what
Boeing's situation is improving, but we're not back to normal yet. The company has hundreds of 737 MAX planes in inventory it needs to find homes for, and according to reports, it gave Southwest a massive discount to sticker price to get a deal done.
More broadly speaking, the airlines will likely need years to pay down the debt they took on in 2020 to survive the pandemic, and will be in no position to aggressively buy up new jets for a while. For now, many will turn to aircraft leasing companies for new planes. Boeing in March got some bad news on that front, with the two largest lessors announcing plans to join forces to create a powerhouse that will have significant leverage when negotiating new aircraft orders.
On an enterprise value basis, accounting for market capitalization and debt, Boeing's valuation is still 20% below where it was prior to the 737 MAX grounding. The company appears on track to slowly close that gap, but investors should be warned it is likely to take time. For now, I see better ways to invest in an eventual aviation recovery.
