There may be upside to Boeing (Boeing Stock Quote, Chart, News NYSE:BA) at some point in the future but until management for the beleaguered plane maker does a better job at dealing with the 737 Max crisis, investors should steer well clear of this stock, says Darren Sissons, portfolio manager for Campbell Lee & Ross.
The fallout continues from the 737 Max tragedies which killed 346 people in two separate crashes earlier this year and in October of last year. Boeing reported its quarterly earnings last week, maintaining that regulatory approval allowing the 737 Max to fly once again should come in the fourth quarter 2019 and that the company is continuing at its production rate of 42 airplanes per month.
The quarter came mere days after Boeing ousted Kevin McAllister as president and CEO of the company’s commercial airplanes unit and reports revealed that Boeing had failed to hand over crucial communications to the US Federal Aviation Administration and congressional investigative committees, including electronic communications between Boeing pilots that spoke of problems with the 737’s flight control system about two years before the two crashes.
Last week, Boeing reported third quarter revenue that was above expectations at $19.98 billion, while disappointing on earnings with an EPS of $1.45 per share versus the consensus expectation of $2.09 per share. Revenue was down 21 per cent from a year earlier, with its commercial airplane unit losing $40 million for the quarter compared to an operating profit of $2 billion a year ago. (All figures in US dollars.)
Sissons says that while the airline sector is currently doing well, Boeing has to get its house in order.
“I think everybody now is getting in planes and flying all around the world, and you need your planes to be safe and if they’re not then they shouldn’t be flying,” says Sissons, speaking to BNN Bloomberg Friday. “It’s very damaging and I don’t think that they’ve got in front of this and managed it very well.”
“I would not buy Boeing at this point. I think that there are a lot of issues. In many cases, it may be somehow reminiscent of the GE issues — one cockroach leads to many more, so just stay away,” he says. “If you’re down a little bit, take the tax loss or just take the medicine and move on.”
Boeing will be testifying this week before the US Senate Commerce Committee on the Max 737 issues, now one year out from the first fatal crash of a Lion Air jet in Indonesia. Boeing’s chief executive Dennis Muilenburg, who earlier in October lost his title as board chairman, will go in front of the committee, where committee chair Senator Roger Wicker says that the plane will not be allowed to fly again “unless 99.9 per cent of the American public and American policymakers are convinced that it’s absolutely safe,” he says.
“The main question is how can we have a comfort level that they won’t happen again,” Wicker said.
Boeing’s share price finished last week down 1.5 per cent. Year-to-date, BA is up five per cent.