Is the Boeing rally for real?

Woe be the airlines during COVID-19, but the weight pulling down Boeing is a lot heavier, says portfolio manager Gordon Reid, who says investors should steer clear of the plane-maker for the time being.

Boeing is in the news again with the US Senate Committee on aircraft certification meeting to tackle the topic of Boeing’s 737 Max aircraft, grounded now for over a year as a result of two fatal crashes.

In this third Senate hearing on the issue, lawmakers have reportedly grilled the Federal Aviation Administration over its role in the disasters, with the head of the FAA, Steve Dickson, admitting that his agency “made mistakes” in its oversight and certification of the 737 Max.

Amid charges that the FAA has been deliberately keeping lawmakers from learning the truth about how a plane with flight control system issues like the 737 Max could have been cleared to fly, Dickson denied that his agency has been anything but open to investigations.

And while the Senate hearing continues, Boeing’s share price has hit a rough patch after completing a strong few weeks of gains, with the company announcing last week that regulatory hurdles to new deliveries of 737 Max planes should be passed sometime in the third quarter this year.

Boeing’s stock doubled in value between mid-May and early June, yet it is still miles off its pre-COVID pace, which itself was significantly lower than where BA was trending before the second 737 Max crash in March 2019.

Those twin troubles and, more importantly, the lack of certainty around when they’ll be resolved, should be enough of a red flag to keep bargain-hunting investors away, said Reid, president and CEO of Goodreid Investment Counsel.

“Boeing has multiple issues to overcome, not the least of which is the COVID-19 issue and how it affects airlines, how it affects people's desire to fly and, by extension, how healthy are the airlines and what is their appetite for new equipment,” Reid said, in conversation with BNN Bloomberg on Wednesday.

“This has displaced the issue of a number of months ago which of course was the 737 Max, which is out of service because of the two fatal crashes, the glitch in the software and the complete lack of confidence that people had in that airplane. So they've got a lot on their plate to overcome before they can be ascribed a decent multiple for future cash flow,” Reid said.

“It becomes a little bit more speculative and I would probably pass on this one,” Reid added.

As reported by CNBC, Boeing’s new orders for May included freighter planes and a total of nine orders, yet the company had twice as many cancellations, including 14 for the 737 Max. Boeing’s overall backlog stood at 4,744 planes, still formidable but the lowest it’s been since 2013.

Boeing’s share price fell by 2.6 per cent in trading on Wednesday and is currently down 40.9 per cent year-to-date.