Why did Boeing shares rise more in June?


What happened

Boeing (NYSE: BA) It has had a miserable 2020, but the aerospace giant is constantly making progress to solve some of its biggest problems. The stock is still down a lot during the year, but stocks were up 25.7% in June, according to data provided by S&P Global Market Intelligence, as investors gained confidence that the worst is over for Boeing.

And that

Boeing had hit the turmoil long before the COVID-19 pandemic, overwhelmed by the March 2019 grounding of its 737 Max jet. The pandemic worsened prospects for Boeing, as it left airlines struggling to cut costs and put the aerospace giant’s order book at risk.

Image source: Boeing.

Boeing alleviated fears of a possible liquidity crisis in late April when it raised $ 25 billion in fresh debt, but the added cash did little to make the company’s problems go away. Activist investor Dan Loeb backed Boeing in early June when his Third Point fund bought Boeing debt, but the shares actually rose as the month progressed as investors grew more encouraged by both 737 emissions. Max like the pandemic could soon in the past.

Earlier this month reports emerged that Boeing was hoping to conduct 737 Max recertification flights in late June (which it did), a key step in getting the plane to fly again. The shares also won in a steady stream of reports that airlines are rebuilding their schedules and that the economy is recovering better than previously feared.

Boeing’s commercial business will almost certainly be under pressure for years, but the return of the 737 Max would help boost free cash flow, and a rapid economic recovery would mean the airline’s crash will end sooner than some feared.

Now what

It is important to remember that even if Boeing is making test flights for the 737 Max, the plane is unlikely to return to service before September at the earliest. Once it does, Boeing has an inventory of approximately 400 aircraft that it has built but was unable to deliver during grounding, and will take months to resolve.

Add it all up, and even in the most optimistic scenario, the 737 Max’s production schedule will be modest for years to come, a fact the company has telegraphed to suppliers. And it remains to be seen whether the plane will ever live up to its pre-production expectations, when analysts thought it might be one of the most successful commercial aerospace platforms of all time.

Boeing shares, once they fell more than 70% on the year, now only fell 44%. The recovery makes sense in that Boeing is no longer at risk of a cash crisis that could seriously damage the value of the shares. But the falls reflect the long and hard journey that awaits the company. Investors should be warned that, at least for now, there are limits to the height of this action.