What happened
Aerospace behemoth Boeing (BA 0.01%) stock took a 2.5% hit on Monday after Bloomberg reported that China Southern Airlines (ZNH) is delaying acceptance of deliveries of more than 100 Boeing 737 MAX jetliners to 2025 or later.
That's the bad news. The good news is that Boeing stock is turning around and regaining altitude this morning, up 3.5% as of 11:40 a.m. ET on a note from JPMorgan that argues the news is "not as stark" as it first appeared to be.
Image source: Getty Images.
So what
Contradicting Bloomberg's read on the situation, JP observes that China Southern not saying it plans to accept deliveries through 2024 is not the same thing as China Southern saying it will not accept the planes, reports TheFly.com today. In other words, there's still a chance the airline will take the planes (and pay for the planes), or at least some of them.
In short: The anticipated hit to Boeing's revenues and cash flow may not be as big as it first appeared.
Now what
So how should investors really be interpreting this news?
First and foremost, I'd take China Southern's statement at face value, and assume that it's now more likely than not that the airline will not buy any Boeing planes before 2025. That should be your base assumption, and it's bad short-term news for Boeing. (China Southern is, after all, Boeing's biggest customer in China). However, it's not horrible news for Boeing in the long term, because of the reason China Southern is making this decision.
It's not making this decision because China doesn't think the 737 MAX is safe to fly. (Chinese regulators actually cleared the 737 MAX as safe to fly in China late last year). Rather, as Reuters clarifies today, China Southern is backing away from buying the Boeing planes because of "slack demand" -- widespread coronavirus containment measures that have crushed demand for air travel in China, to the extent that passenger traffic through Shanghai International Airport fell 98.9% year over year in April!
That's hardly a problem Boeing can be blamed for. It's also a problem that will resolve itself just as soon as China relents on its lockdowns, and allows people to get out and about and flying again.
Once air travel resumes in China, I suspect Boeing airplane sales to China will resume as well.
