With Boeing (Boeing Stock Quote, Chart, News NYSE:BA) having resumed production of its 737 Max airplanes, there’s a touch of optimism in the air surrounding the company’s fortunes.
But investors should be careful, says portfolio manager Rob Lauzon, as the plane maker’s troubles —and those of the airline industry itself— now run pretty deep.
Shares of Boeing have been on a nice run of late, rising 27 per cent over the past two weeks and capping it off with an announcement on Wednesday that 737 Max production was underway at its Renton, Washington, factory.
“We’ve been on a continuous journey to evolve our production system and make it even stronger,” said Walt Odisho, vice president and general manager of the 737 program, in a press release. “These initiatives are the next step in creating the optimal build environment for the 737 MAX.”
Boeing had stopped making the planes in January, while it’s been over a year since the last airline received a new 737 Max, the plane having been grounded worldwide since two crashes in the fall of 2018 and spring of 2019. Boeing saw a number of order cancellations related to the crashes and more with the onset of COVID-19 and the wholesale shuttering of air travel globally. Boeing now has literally hundreds of Max planes in storage.
Lauzon, managing director at Middlefield Capital, says Boeing’s return to glory could take a lot longer than expected, as the demand for new planes has dried up.
“We do not own Boeing currently,” said Lauzon, speaking on BNN Bloomberg on Thursday. “I think there are too many headwinds on the company itself. There are multiple risks. There’s not a lot of clarity on when we’re all going to get go back flying and what the new demand is for planes.”
“There’s a lot of leasing activity that picked up in airplanes over the last ten years and a lot of those leases are now being busted,” he said. “So there are empty planes that need to get released, and those would be a lot cheaper than an airline buying a brand new plane from Boeing.”
Last month, Boeing announced plans to cut its global workforce by ten per cent, equal to about 16,000 jobs, as the demand for aircraft dwindles. Boeing said over 100 orders for the 737 Max plane were cancelled in the month of April alone, with no new orders received.
Boeing reported first quarter results at the end of April which showed a 26 per cent drop in revenue from a year earlier and an adjusted loss of $1.70 per share.
“The industry is in a bit of upheaval,” Lauzon said. “I would stay on the sidelines, especially given the rally [Boeing’s stock] had from its lows six weeks ago.”
“I don’t think we have to worry at this point about solvency, but I would like to enter the stock closer to probably 15 per cent or even more cheaper than where it is today,” he said.