The Boeing Company (NYSE: BA) has announced their earnings results for Q4 2019.
Revenue for the quarter was $17.9 billion which missed analysts’ estimates of $21.76 billion (-17.7% vs estimates).
EPS for the quarter was -$2.33 missing analysts’ estimates of -$1.82 (-28.0% vs estimates).
The stock has been hammered pretty badly in the stock market for the past year (down about 20% since the same time last year) due to ongoing issues with its 737 MAX line of commercial jets.
Back in December 2019, the board of directors fired the then-CEO Dennis Muilenburg, citing his poor performance at dealing with this crisis as the reason. This earnings report is the first report that the new CEO, David L. Calhoun will deliver to shareholders and analysts, although his performance as CEO will not be reflected until the next quarterly report.
The Saga of the 737 MAX Aircraft
News of the issues with the 737 MAX first began back in October 2018 when Lion Air Flight 610 crashed into the ocean killing all 189 onboard. Another crash occurred in March 2019 when Ethiopian Airlines Flight 302 crashed, killing all 157 people onboard. The cause of both these crashes is widely blamed on the 737 MAX’s faulty autopilot software, which has a tendency to malfunction and turn the nose of the plane downwards at an unsafe angle and causing the plane to plunge.
Aviation authorities around the world soon began to announce the grounding of the aircraft starting with the Civil Aviation Administration of China. The U.S. and other countries quickly followed suit and announced that they were also grounding the aircraft until the issues can be resolved. The Federal Aviation Administration (FAA), which is the American body that’s responsible for regulating aircrafts, has stated that Boeing would need to re-certify the 737 MAX before it can fly again. The FAA has hinted that the re-certification could come sometime in mid-2020.
Airbus is Sitting On the Side Eating Popcorn
The commercial aircraft manufacturing industry is essentially a duopoly that has existed for the longest time between Boeing and Airbus. With the latest bad news around Boeing, Airbus stock has drastically outperformed Boeing for the past year and is now trading at all-time highs.
Even if the issues are resolved immediately (which is extremely unlikely), consumer confidence in Boeing and its reputation have already both hit all-time lows. Recently, news came out that employees of Boeing knew that plane’s design was flawed as early as 2017, with one employee calling the plane as “designed by clowns who in turn are supervised by monkeys”.
Buy the Fear, Sell the News?
Many people are betting on Boeing eventually getting over the 737 MAX crisis and buying into the weakness on the age-old American blue chip. Boeing would certainly want to distract you from the 737 MAX by showing off its new 777X jet which has just completed its maiden test flight a few days ago. Still, buying Boeing stock is a bit of a gamble right now.
There is always the chance that the re-certification of the 737 MAX can be further delayed. Boeing has poured too much money into the development of 737 MAX (somewhere between $2B-$3B) to consider scrapping the plane altogether. This latest earnings report reflects massive hits that the company has taken in relation to the 737 MAX and the company can expect much more fines, litigation fees, and other related expenses in the coming months as this crisis drags on.
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