Fear of another infectious wave has again affected international travel with the imposition of stringent testing rules by many countries. However, the passenger numbers at TSA checkpoints remain 15% below pre-pandemic figures – highlighting strong domestic demand. Interestingly, the shares of Boeing (NYSE: BA) have not observed a steep fall as observed by prominent airlines including American, Delta, and United. BA stock has lost $50 billion in market capitalization since February 2020 – much more than the $22 billion of operating cash burn in the same period. Low production numbers coupled with a dip in air travel demand weighed on the company’s finances during the pandemic, but Trefis believes that long-term trends remain in favor of the stock. Our analysis on Boeing Upside Post Covid compares Boeing’s performance over the 2008 financial crisis versus the Covid-19 crisis. (related: Are Long-Term Trends In Favor Of Boeing Stock?)
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- Since 3/24/2020: S&P 500 recovers 109% from the lows seen on Mar 23, 2020, with the Fed’s multi-billion dollar stimulus package keeping the economy afloat during the prolonged lockdown and the vaccination drive allowing things to gradually return to near-normal conditions despite several waves of Covid infections.
In contrast, here’s how BA and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
Boeing Stock vs S&P 500 Performance Over 2007-08 Financial Crisis
BA stock declined from levels of around $106 in September 2007 to levels of around $31 in March 2009 (as the markets bottomed out), implying BA stock lost 70% from its pre-crisis level. It recovered post the 2008 crisis to levels of about $54 in early 2010 – rising by 72% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.
The MAX crisis stalled Boeing’s topline, but rising production to assist revival
Boeing’s revenues declined by 42% from $101 billion in 2018 to $58 billion in 2020 as the FAA grounding directive for MAX aircraft led to the suspension of deliveries and a halt in production. Notably, the long-term debt soared from $10 billion in 2018 to $62 billion in 2020 due to a jump in inventories and capital raises to handle any adverse pandemic situation. Per Q3 2021 filings, the 737 MAX aircraft production rate stood at 19 units/month – slowly growing toward the target of 31 per month by 2022. The company has burned $25 billion of operating cash in the last three years, which has largely been due to $23 billion increase in inventories. Therefore, rising delivery rates will ease the balance sheet and push production figures.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment
The high cash burn figures have largely been due to Boeing’s build-up of inventories and other working capital changes. While weak near-term demand due to the pandemic is likely to weigh on the company’s financials, Trefis believes that the 4% annual growth in global passenger traffic in the next two decades is likely to assist shareholder returns.
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