What happened
Shares in aviation giant Boeing (BA 0.01%) fell 11.7% in May, according to data provided by S&P Global Market Intelligence. The move is a stock-specific issue as the benchmark S&P 500 index was unchanged on the month, and better-quality stocks in the aviation sector had a positive performance in the month.
Following the 737 MAX grounding debacle, Boeing is not a company with a lot of investor confidence in the tank. That's a big reason why the share price is susceptible to negative news, and unfortunately, there was plenty of that in May.
Image source: Getty Images.
Following a disappointing set of earnings released in late April, Boeing's management found itself subject to criticism from the CEO of the world's second-largest leasing company, Avolon, which claimed Boeing had "lost its way."
It gets worse. The ever-vocal CEO of budget airline Ryanair Holdings, Michael O'Leary, claimed Boeing's management was "not up to the job," noting that Boeing kept "missing delivery dates." Ryanair is one of Boeing's largest customers.
So what
Public criticism is one thing, but it can't be dismissed, because Boeing faces issues across all its major commercial airplane programs. Supply chain issues and component shortages are constraining a production ramp-up on the 737 MAX (a plane that should be the narrowbody workhorse of the skies alongside the Airbus A320 family). Moreover, the first delivery date of the 777X (the updated version of the widebody 777) has been pushed out to 2025, thus incurring a further $1.5 billion in costs, according to management.
Meanwhile, deliveries of the 787 remain halted while Federal Aviation Administration (FAA) inspections are undertaken. In mid-May, the FAA told Boeing its documentation submitted to win delivery approval was incomplete.
The negative news flow on the 777X and the 787 is doubly disappointing considering Boeing is often seen as having an edge on Airbus in widebodies, while its European rival leads in the narrowbody market. Indeed, one of the bullish arguments for buying Boeing stock was that a widebody replacement cycle was expected to kick in at the start of this decade.
Now what
It wasn't a good month for Boeing, and the company still has a lot of work to do to regain investor confidence. That said, its end market backdrop remains positive as commercial flight departures recover. Moreover, Boeing still has a backlog of 3,365 Boeing 737s and 405 Boeing 787s to fill. As a result, it's in management's hands to improve operational performance, but it will take time.
