Boeing (Boeing Stock Quote, Chart, News NYSE:BA) is having another bad news week as the aerospace company announced that its 777X plane had failed a safety test.
But despite its current problems, investors shouldn’t fear Boeing, says Mike Newton of Scotia Wealth, who thinks that with its stranglehold on the aircraft industry, the company will do fine in the long run —and may even pick up ground over the short and medium term.
Boeing on Tuesday announced that it had suspended final load testing of its new widebody 777X aircraft on Saturday due to an issue involving depressurization of the plane’s rear fuselage.
The news comes at the six-month mark of the crash of a Boeing 737 Max owned by Ethiopian Airlines which came just months after a Lion Air crash of the same jet off the coast of Indonesia.
The tragedies, said to have been caused by a malfunctioning sensor, have prompted the grounding of the 737 Max worldwide by aviation regulators and the suspension of delivery and reduced production of the plane by Boeing, who have given the fourth quarter of this year as a rough timeline for the 737 Max to return to service.
Boeing stock rose in August after trailing off following the crash of a Boeing 737 Max owned by Ethiopian Airlines…
And as the company deals with lawsuits related to the crashes, Boeing’s share price, which had been rising over the first few months of the year, has trailed off, although BA has picked up some steam in recent weeks, climbing 15 per cent since mid-August.
Over the past half decade, Boeing’s share price has performed exceptionally well, rising from $120 per share in mid-2014 to where it now trades in the high $300s. (All figures in US dollars.)
Newton, Director of Wealth Management for Scotia Wealth, says that with Airbus SE and Boeing standing tall as the world’s leading aircraft manufacturers, investors should have little to worry about in the long run.
“It’ll be studied in business schools how the whole thing unfolded,” said Newton, in conversation with BNN Bloomberg on Tuesday.
“I can tell you that when I come back on this show in five years (Boeing stock) will be a lot higher than it is now.”
“I would say that every single regulatory body and industrial safety committee, every government regulator is combing over this thing like crazy. It’s probably overdone. I can tell you that when I come back on this show in five years it will be a lot higher than it is now.”
“You have to look past this unfortunate situation — and I’m not making light of the fact that safety is number one and that we don’t like what we saw — but this name is one of two in a duopoly and I think that it’s going to be just fine,” he says.
“There’s a lot of negativity and it’s going to take a good year before this gets going, but you’re seeing it upticking in a negative market so that could be positive,” he says.
Boeing also announced on Tuesday that its plane deliveries for the year so far are down more than 40 per cent, with the company sending out 276 aircraft in the first eight months of 2019 compared to 481 for the same time period a year ago. For the month of August, its deliveries were one-quarter the amount they were a year ago.
In July, Boeing reported its largest quarterly loss ever at $2.9 billion or $5.82 per share for its second quarter 2019. Revenue fell to $15.8 billion, a 35-per-cent decline year-over-year.