Boeing Still Struggle While Demand for Airliners Soars
Despite a surging demand for new airplanes, US defense giant Boeing (BA:US) has continued to be hampered by a series of execution issues. Shares of the company are up ‘just’ 5.13% year-to-date, compared to the 13.71% gain seen in the S&P 500.
Supplier Struggles Continue
Boeing’s stock price fell about 6% in mid-April after the company warned of delayed 737 MAX deliveries due to a quality issue. Spirit AeroSystems, one of Boeing's key suppliers, identified that it wrongly fitted a part on the rear end of the plane.
"We regret the impact that this issue will have on affected customers and are in contact with them concerning their delivery schedule," the company said in a statement.
The company also said that a “significant number” of jets in storage, waiting for the delivery, are affected by the new issue. As a result, Boeing’s deliveries dropped to just 26 airplanes in April, less than half of the previous month's total.
"This is not an immediate safety of flight issue and the in-service fleet can continue operating safely," the company said.
The issues come as Boeing and its 737 Max aircraft continue to be under intense scrutiny after two fatal accidents took place in 2018 and 2019. The 737 Max jet was grounded for some time, prompting investors to flee Boeing stock while waiting for more clarity.
In addition to its own 737 Max issues, Boeing has also faced multiple issues with its suppliers. Earlier this year, the defense titan halted deliveries of its 787 Dreamliner due to a data issue.
Moreover, shares of Boeing fell modestly last week when its key supplier Spirit AeroSystems was forced to shut down a factory after workers went on strike. The firm’s contract offer to its workers was reportedly rejected by 79% of members of the International Association of Machinists and Aerospace Workers (IAM). Additionally, 85% of workers voted to strike.
“We are disappointed that our employees represented by the IAM rejected our four-year contract offer and voted to strike. We believe that our fair and competitive offer recognizes the contributions of our employees and ensures we can successfully meet increasing demand for aircraft from our customers,” the company noted it its statement.
The new contract offer was based on a 34% pay increase, a 14.7% increase in retirement benefits, and increased time off, among other things. The strike is expected to start on Saturday, June 24.
Boeing’s woes can also be seen through the interest of Congress members in the stock. For decades, Boeing has acted as one of the most important stocks to own in one’s portfolio. However, this sentiment has changed given the company’s struggles in recent years.
Earlier this year, Congressman Kevin Hern sold some Boeing shares. Elsewhere, Representatives Tom Suozzi and Alan Lowenthal both traded the stock last year, including Suozzi’s $15,000 - $50,000 worth purchase of Boeing shares back in March 2022.
‘We Cannot Make Planes Fast Enough’
Execution and issues with suppliers come at a time when there is a soaring demand for airliners. Guillaume Faury, CEO of Boeing's biggest rival Airbus, said this week that demand for new jets continues to outweigh supply.
Airbus has been continuously gaining market share as the Europe-based jet maker benefits from Boeing’s woes. For years, these two rival had a 50-50 split when it comes to global orders. However, Airbus today controls about 62% of the market for single-aisle planes, according to WSJ.
However, Airbus has also struggled on the supply side – mainly with things like semiconductors, workers, and engines.
“There is economic slowdown, but airlines do not see a slowdown of bookings. And they continue to see a very strong demand with high prices,” Faury told WSJ.
“We cannot make planes fast enough to satisfy the demand,” Faury added.
Boeing CEO David Calhoun echoed Faury’s comments and said that its key customers are placing orders for airplanes that should be delivered in the ‘30s. Why? Because they also understand that the supply chain issues are here to stay.
Despite these issues, both companies have attracted massive orders at the most recent Paris Air Show. Turkish Airlines ordered 600 new aircraft, IndiGo 500, Air India 470, while Ryanair wants 300 new planes.
Following this much-anticipated event, analysts expect that Airbus will report a new all-time backlog high at its next earnings call.
Boeing attracted customers from Saudi Arabia, whose two airlines want to buy nearly 80 787 Dreamliners. United Airlines is also looking to get 100 wide-body jets from Boeing while Ryanair’s order is focused on 737 MAXs.
“We’ve had some really, really big orders,” Boeing commercial chief Stan Deal said. “You’re seeing the wide-body market pick up and very strong demand there.”
Airbus and Boeing attracted 1,429 jet orders this year, already topping the 1,377 from 2019. Confirmed orders at this year’s Paris Air Show are the highest since 2011.
