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To say Boeing (NYSE:BA) has been navigating turbulent times as of late would be a vast understatement.
After years of battling concerns about the safety of its 737 MAX planes, the iconic aerospace company, which helped put Neil Armstrong on the moon, is now facing accusations of shoddy workmanship on other models, including the 777 and 787.
Meanwhile, Boeing shares have suffered arguably as much as its once top-flight reputation, falling 37% year-to-date while the S&P 500 has climbed 7%, as of April 15.
This week’s SA Analyst Roundtable will focus on what’s next for Boeing, its competitors and the stock. Our panelists this week are aerospace analysts Leo Nelissen, Dhierin Bechai and Joseph Shaefer.
What’s next for Boeing?
Leo Nelissen: Boeing’s problems are self-inflicted. Management has neglected the safety culture after its duopoly with Airbus turned the company into a cash machine that benefited from the endless growth in global commercial and defense aerospace demand.
Now it needs a complete overhaul of its operations, reporting standards, and efficient PR to improve its brand again. If it succeeds in reducing errors and bringing back trust, it could result in a much higher stock price. For now, that’s a bumpy road.
Joseph Shaefer: More of the same, at least in the investible short term. Briefly: 1. Too much financial engineering experience on the board and not enough manufacturing experience. 2. Too many CEOs recruited from the golf course and country club. Boeing once had leaders willing to roll up their sleeves and get grease on their hands. 3. A culture that glorifies the growth of the bottom line at the expense of pride in this important work and at the expense of safety.
Dhierin Bechai: Boeing is facing a complex crisis that involves several stakeholders. The big next step for Boeing is to select a suitable CEO that will be able to restore confidence with airlines, the flying public, lawmakers and aviation regulators around the globe. This can be achieved by demonstrating tangible improvements in Boeing's quality assurance and manufacturing processes, which could possibly already happen under the leadership of the current CEO, but the next CEO will likely have to maintain and expand the focus on quality control and the company's manufacturing processes.
The next CEO will also likely be tasked with the launch of a next generation commercial jet, which will strengthen the company's commercial airplane portfolio with a clean sheet design.
Which of Boeing’s competitors stand to gain the most from its woes?
Leo Nelissen: The answer is Airbus (OTCPK:EADSF), the only company that can compete with Boeing. The two dominate commercial aerospace, as no competitor is able to compete on scale and quality in the “large plane” segment. Competitors don’t have the facilities, the funding or the supplier relations to get the job done.
Although Airbus says it isn’t happy with Boeing’s issues due to the impact on the industry, it’s certainly benefiting. For example, it just got a 65-plane order from Korean Air and JAL, which are two key Boeing customers. This allows Airbus to compete with Boeing’s 737-MAX and 777/787 long-haul planes in the Boeing-focused segment.
In fact, Japan is trying to work on its own airliner to lower its dependence on Boeing and Airbus. That’s a tough project, and I doubt it will hurt Boeing. However, it’s a trend that should worry the company. Unless Boeing quickly improves its reputation, Airbus will continue to outperform the struggling giant.
Joseph Shaefer: Too many people believe Boeing and Airbus are the only choices in this industry. Half of Boeing's income comes from the defense side of the business, where they have in recent years consistently disappointed. (One of my articles on BA addressed the disastrous production of the KC-46A tanker.) I believe companies like ATI (ATI), RTX (RTX), and Safran (OTCPK:SAFRY) will continue to do well, even if Boeing is forced to curtail production for longer than expected.
Dhierin Bechai: There are currently three big commercial airplane manufacturers: Airbus, Boeing and Embraer (ERJ), with Chinese COMAC as a distant fourth. I believe that Airbus stands to gain from the issues. Boeing recently lost sales campaigns with Air France-KLM and Qantas, both of which have rather big fleets of single aisle Boeing airplanes. Meanwhile, United Airlines (UAL) is looking to lease Airbus jets to capture the shortfall in its capacity plans due to continued delays in the certification of the Boeing 737 MAX 10.
It should, however, be noted that Airbus delivery slots are fully sold out for years to come. While not as extreme as with Boeing, Airbus is also facing challenges to increase production rates to meet demand. This means the company has pricing power now, but over time Boeing could start recapturing market share with a combination of attractive pricing and production capacity. Airbus is set to benefit, but the ability to increase production is key to how much it can really gain.
Where do you see Boeing’s stock in 12 months?
Leo Nelissen: Despite its issues, I’m bullish on Boeing. As I wrote on March 19, a lot of weakness has been priced in and orders continue to be strong. It now has a commercial backlog of more than $440 billion, is seeing stabilization in margins, M&A opportunities that include its supplier Spirit AeroSystems (NYSE:SPR), and an increasingly healthy balance sheet. I would not be surprised if Boeing were to trade above $230 in April 2025.
Joseph Shaefer: Range bound. If current management continues to worship growth of revenue as Boeing's primary reason for being, I see the range as between $150 and $250 -- with much volatility -- in the next 12 months. If they instead show respect for the magnificent engineers and manufacturing employees who take pride in building safe, high-quality aerospace and defense products, then near the end of those 12 months I would say the sky's the limit.
Dhierin Bechai: It's hard to tell where Boeing stock will be or should be a year from now. One reason is the execution risk and the second is the exaggerated focus on every Boeing airplane involved in incidents. Incidents that would normally not make headlines are now picked up by the media, which affects Boeing's stock price.
My price target for 2025 is $250 per share, but that depends on Boeing's ability to improve its delivery rates and the acquisition of Spirit AeroSystems, which likely will not be a positive for Boeing's debt load and subsequently its valuation.