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Boeing PR Nightmares Continue; Plane Catches Fire but Investors Shouldn’t Worry

Last Updated September 23, 2020 1:17 PM
Kiril Nikolaev
Last Updated September 23, 2020 1:17 PM
  • It appears that Boeing’s public relations problems keep mounting after a 777 plane caught fire immediately after takeoff.
  • Despite grounded planes, shares of the airline company are still soaring.
  • Analysts remain bullish on the stock as long as BA trades above the key support area of $340.

Boeing (NYSE:BA) appears to be recovering from the PR nightmares brought about by two plane crashes a few months ago. However, a video started to circulate on social media of a Boeing 777 catching fire while in flight. The airplane was headed to Manila but pilots had to make an emergency landing after passengers noticed that the plane emitted fire from under the right wing. Fortunately, all passengers and crew members were able to safely disembark in Los Angeles.

events like this one that compelled Democratic Senator Richard Blumenthal to call Boeing planes “flying coffins.” Nevertheless, investors shouldn’t lose sleep over Boeing’s faulty planes because the company is aggressively buying its own shares. The strategy appears to be working as the stock is in the green this year.

Strong Buyback Program Lifts BA Stock While Planes Are Grounded

Boeing’s 737 MAX planes have been grounded since mid-March following two crashes that killed 346 people . In spite of the grounding and public relations mess that came with it, BA proves to be a resilient stock. The security is up by 16% year-to-date.

It’s hard to believe that the stock of an airline company on the receiving end of bad press is still growing significantly. Investors should thank the company’s multi-billion dollar buyback program for BA’s gains over the years.

According to the Seattle Times, Boeing allocated 92% of operating cash flow to share buybacks and dividends  to the delight of investors. In addition, share buybacks have amounted to $70 billion, adjusting for inflation, since 1998. That’s a lot of money to help ensure that the stock remains bullish.

However, the aggressive buyback program comes with a hefty price tag. As of March, Boeing’s debt amounted to $14.7 billion . Fitch estimates that consolidated debt for the airline company would skyrocket by $10 billion this year for a total of $24 billion.

A picture of Boeing’s debt situation
A picture of Boeing’s debt situation. | Source: MacroTrends 

Analysts are Cautiously Bullish on BA

Even though a Boeing plane caught fire, the airline company wouldn’t likely suffer the brunt of the negative press. That’s because Boeing is not responsible for the manufacturing of the 777’s engine. If there’s anyone to blame, it’s General Electric .

Mati Greenspan, founder of Quantum Economics, echoes this view. After sharing a link to the video of a 777 catching fire shortly after takeoff, the analyst told CCN.com,

Those types of videos are not good for airlines in general but at least Boeing should be shielded somewhat from this particular PR problem as they did not make that engine.

Most importantly, no one died or got hurt. Thus, it is very likely that BA’s stock will continue with business as usual. JM Vala, founder of LayupTrades, is still bullish on the equity as long as it holds a key level. He said,

Boeing continues to consolidate in the same general range as it had for the last two years. From a bullish perspective the stock needs to continue to hold above the 340-360 area.

The trader added,

If support is lost then price can test back down to 275.

I doubt that a 25% drop would happen anytime soon. After all, the company is spending billions to keep investors happy.

Disclaimer: The above should not be considered trading advice from CCN.com.