I’m going to start out with the obvious mistakes The Boeing Company has made, why they are correctable overtime, and why I think it provides a buying opportunity with the stock priced for doom and gloom. I will also be mentioning Boeing’s main competitor Airbus, due to their importance in understanding Boeing’s main completion in the future.
The biggest and most obvious mistake the company made in the last few years was the 737 MAX. I want to take some time and briefly go over the history of the 737 aircraft. The first 737 came out in 1967, making this aircraft a dinosaur in the industry today. So why is the plane still flying? Well, the 737’s popularity comes from her size and range. The plane is perfect for domestic flights in all countries across the world. Depending on what variant, the aircraft seats roughly 150 passengers making flights easy to fill en route to popular destinations. The 737 quickly became an industry darling which is why we have seen the plane flying for so many decades. The original 737-100 was the first variant, with the 737-700, 737-800, and 737-900 being the main variants flying in the Untied States today. Boeing has continued to upgrade and build off of the 737 platform due to its popularity and factory infrastructure already being in place. Boeing currently has nine variants of the 737, not including the three size and range variants under the 737 MAX category.
The reason I wanted to touch on the history of this plane is to basically say that the damn thing is old, and it can only have a face lift so many times. This “face lift” attitude is exactly why we saw two tragic crashes with the 737 MAX. They are taking an old plane and trying to jam a bunch of new technology into it. The new more fuel efficient “LEAP” engines the Boeing 737 MAX is outfitted with, have a much higher bypass ratio. This means the overall size of the engine is larger, which threw the overall center of gravity of the 737 off, making the plane tail heavy. Instead of correcting the issue, Boeing tried to solve it by creating a software that would automatically push the nose of the aircraft down when the pitch became too high. This software “MCAS” is what malfunctions and killed 346 people.
Boeing rushed the development of the 737 MAX to compete with the Airbus A320, a similar size plane that is much newer (released in 1984). The A320 has been updated and upgraded over the last thirty plus years as well, but you have to understand the overall construction of airliners in 1984 was much more advanced than when the 737 first came out in in the late sixties. Therefore, the Airbus A320 has accepted new technological upgrades much more smoothly.
So, if we boil all this down, Boeing should have said, “We got over fifty years of service from the 737.” Let’s lay her to rest, and design a 21st century airliner.” But greed got to them. They threw in some new technology, a new label, “MAX” and sent the plane out. It was the wrong thing to do. It was ethically and morally wrong. They fired the CEO and have been tackling the 737 MAX problem since.
The other obvious disaster for the air travel industry has been COVID-19. This, is a macro problem, and does not reflect poorly on the company. I do believe we will move past COVID sooner than later with Boeing, and Airbus, picking up where they left off.
Now that we discussed Boeing’s failures and the reason for the low stock price, let’s take a look at their main competitor, Airbus. It is no secret that Airbus has been gaining market share and is a stronger competitor than ever. But I want to highlight some mistakes that I think reflect poorly on the company’s management. The first big mistake was the Airbus A380. The biggest airliner in the world. This double-decker behemoth has been a failure in the airline industry due to its expensive operational costs, and Airbus’s failed idea of a hub and spoke travel model vs. point to point air travel. Point to point takes you directly from your home airport to your destination. Hub and spoke flies you from your home airport, to a large hub where you then board a bigger plane such as an A380, then fly to your destination. The point to point is not only proving to be more fuel-efficient, but also cost-effective for airlines due to lower expenses at smaller airports. Passengers also seem to enjoy one direct flight rather than two.
With all the time and money spent developing the A380, Airbus missed a massive opportunity to create a more fuel-efficient airplane that was easier to fill to max capacity, and cheaper for airlines to operate. Boeing ceased this opportunity and did exactly that with the release of the 787-8 in 2007. An extremely fuel-efficient wide body aircraft with an incredibly long range. This plane is perfect for high demand domestic routes like LA-NY as well as just about any flight crossing the Atlantic or Pacific from the United States. The plane’s versatility, efficiency, and passenger comfort has made her extremely popular with airlines and the frequent flyer. The 787 currently has 1,507 orders with 981 of those being fulfilled.
My hope is that Boeing will take what they did with the success of the 787, and do the same with their new mid-sized aircraft set to release some time around 2025, the 797. This concept airplane could very easily become the 737, and 757 replacement. I also believe it will be a much stronger competitor to the Airbus A320.
Below is a chart courtesy of Statista that shows total deliveries for Boeing since 1998. Boeing has currently made 98 deliveries in 2020 which is absolutely dismal. This number will surely rise in the years to come.
Below is another chart courtesy of Statista showing orders between the two competitors since 2006. Again, it is my belief this number will increase for Boeing in the years ahead.
Having talked about Boeings short comings, I want to list out a few strengths that I believe are a reason to buy into the current weakness of the stock.
- Boeing has an extremely strong brand and reputation. The MAX mistake was an enormous one, but I think the company will move past it.
- Boeing does quite a bit of business in the defense, space, and security sectors, adding diversity and stability to their overall business.
- Boeing is more than a market leader, it’s a monopoly.
- Boeing has built relationships with airlines all over the world, with some exclusively operating a Boeing fleet.
- The 787 is a remarkable feat of engineering. It is the most fuel-efficient airliner in the world, and in my opinion a better overall product than the Airbus A350.
- The 777X will soon be released, MAX certification is on the horizon, as well as the 797 project.
In closing I think Boeing is a buy at these levels. I myself have been buying Boeing with both COVID, and the 737 MAX news depressing the stock to levels not seen since 2013. I believe the worst is behind them and the company can only go up from here. I believe the 787 will be a fantastic airplane for decades to come, and I also believe the 737 MAX will be fixed and flying in the near future. With the 797 and 777X on the horizon, and a world where people frequently fly again, I think Boeing is setting up for a recovery into normalcy, and beyond.
This blog is based on my own personal opinions and views, and should not be taken as professional investment advice. Market speculation is very risky, and you should do your own research before deploying capital. Any action you take upon the information provided on this website is strictly at your own risk.