Boeing (BA) CEO Dennis Muilenburg was on Capitol Hill on Tuesday, testifying before the Senate Commerce Committee about the company’s efforts to address issues with the flight control system that has been implicated in two fatal crashes of the – now grounded – 737 Max aircraft.
Held on the anniversary of the first accident, many family members of the victims were in attendance, seated directly behind Muilenburg as he endured a grilling from Senators about the questionable design of the MCAS system as well as the company’s response to the crashes.
Nearly all of the committee members began their questioning with words of sympathy for those in the room who had lost loved ones before excoriating Muilenburg, with many pointing out the recent revelation of internal messages suggesting that Boeing test pilots and engineers had concerns about the MCAS system as early as February 2019 – at one point even referring to the actions of the system in a simulator as “egregious.”
The Senators also questioned Muilenburg about the view that he should resign as CEO in the wake of the tragedies. The CEO offered no indication that he had any intention of stepping down. He will face another panel in the US House of Representatives on Wednesday.
Though the contentious questioning so far would seem to cause concerns about Boeing’s direction in the short term, Boeing shares actually rallied during Tuesday’s procedures, trading up approximately 1% at mid-day.
In the most recent earnings report, Boeing estimated that the grounding of the 737 Max had cost $900 million during the quarter, bringing the total to just over $ 9 billion overall. There’s no clear schedule for a return to the skies, but the major carriers including American Airlines (AAL) and United Airlines (UAL) are planning for the planes to be back in service in January of 2020.
The reason for the resilience in share price seems to be that investors expect a delayed cash-flow event when the planes are cleared to fly again. Despite public apprehension about flying on the planes and significant criticism from carriers and labor unions who are also suffering financially as a result of the groundings, there have been only a small handful of order cancellations.
Boeing’s aircraft deliveries were off 47% during the first 9 months of 2019 to 302 units, almost entirely due to the 737 Max issues. They company had previously forecast 900 deliveries this year, though it’s apparent they will struggle to get even hallway to that figure.
Once they begin delivering again however, Boeing reports on their public website that there are more than 5,000 outstanding orders for the 737 Max – more than 10 years’ worth even at maximum capacity.
Investors who expect the 737 Max to be flying again in the next few months apparently think that although the current situation is costly and painful for Boeing, the revenues will start flowing in again as soon as the planes are cleared to fly. The prospect of two or three rough quarters isn’t enough to dissuade them from owning a company that has a ten-year order backlog on its most profitable product.
It’s certainly going to be an uncomfortable week for CEO Muilenburg in Washington DC, but the financial markets are predicting that Boeing will be able to put these problems behind them in the near future.
Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better. See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Boeing Company (BA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Powered by WPeMatico