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Boeing Stock Has a Much Bigger Problem Than the FAA

Last Updated September 23, 2020 1:31 PM
Francois Aure
Last Updated September 23, 2020 1:31 PM
  • Boeing (NYSE: BA) stock rallied sharply off its daily lows on Friday as the FAA cited a more optimistic timetable for the 737 MAX’s return.
  • Surprising investors, this change of tone comes after a tumultuous week where even President Trump attacked the company.
  • Despite the good news, the consumer and not the government will decide the long-term outlook for BA.

Boeing stock recovered sharply on Friday to close the week on a positive note as the FAA called U.S. airline executives to inform them the 737 MAX could be set to return to service sooner than mid-year. Unfortunately for enthusiastic BA bulls, pleasing a federal agency is going to be a cakewalk compared to winning back the public’s trust.

Boeing Bulls Revel In FAA’s 737 MAX Optimism

It was undoubtedly strange timing for a headline, as the FAA’s more generous timetable for Boeing’s infamous jet’s return to the skies hit newswires late in the session on Friday. Just a few days ago, U.S. Secretary of Transportation, Elaine Cho, said there was no timetable for the 737 MAX. 

While it is good news for investors that the U.S.’ largest aerospace manufacturer is doing it’s best to make its plane worthy of flying again, things have come out about the production process that will never be forgotten.

The monopolistic world of aviation has always relied on a circle of trust when disasters happen. Boeing spends a lot on PR, and then the public trusts the FAA to tell the airlines it’s safe, and they keep buying the jets (because they have no other option.)

Boeing stock, BA, Dow Jones, 737 MAX

It all works because there is basically only one other company in the world (Airbus) who can make a comparable product, and what a surprise, their order-book is full  as they are the other half of the duopoly .

The only way that this system breaks down is if the consumer ignores the FAA and stops buying tickets with carriers who stock the plane.

Consumer Opinion, Not The Feds, Is BA Stock’s Biggest Concern

For Boeing stock, groundings are in theory only a temporary concern. Canceled orders are scarce in this industry . Almost all of the bad vibes for BA stock have been predicated on delays, fines, and the fact that things were going exceptionally well, as the company posted revenue of $100 billion for the first time in 2019 .

Boeing Stock, BA, Dow, 737 MAX, FAA
Boeing (NYSE: BA) rallied strongly on Friday after the government changed their tune on the 737 MAX. | Source-Yahoo Finance 

Unfortunately, as is often the case where companies lack competitors for structural reasons, complacency set in. Whether you blame the FAA, the monkeys, or the clowns , they all played a role in the horrific and avoidable 737 MAX disasters. As further issues have emerged with the MAX, it’s clear the FAA failed in their job to correctly protect the consumer, as Boeing employees admitted to covering them up .

Now, realizing that the wheel is broken, Boeing, the FAA, and the airlines are making a push to ensure that things get back on track, even as further revelations from the past emerge to damage the 737’s legacy . Additional pressure is also being applied, as Moody’s has Boeing’s credit rating on downgrade watch .

Re-Branding May Not Be An Option

Understanding all of this, Boeing stock may be on more of a knife-edge even than its struggling share price suggests. If they choose to relaunch the jet and people are happy to fly on it, then no problem.

But, if the public indicates it doesn’t want to fly on the 737 MAX, then good luck sticking a new name on the side and convincing the much more skeptical modern consumer that it’s a new plane. Bank surveys found last year that flyers would do their best to avoid the jet , and that was before the chaos of the previous few months.

Closing the week at $323.05, BA is well off its recent lows around $300. Bulls are bargain hunting on the hope that the FAA’s more optimistic tone marks a sea-change in a miserable period in Boeing’s history

In the short term, this could be a powerful driver in the market. But long-term consumer trepidation is a lurking threat for Boeing stock that may linger indefinitely over the 737 MAX’s brand.