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When it comes to the aerospace sector, retail investors can expect a duopoly in the civilian aircraft manufacturing space. Boeing is the oldest and arguably the most historic company to occupy this space. However, the dearth of solid facts or a steady line of innovative products might make some investors think that this is not an exciting space to invest into.
However, this isn’t necessarily the case. In this article, we go over the latest fundamental growth factors that will shape Boeing’s future as it continues to grow.
Spreading Its Wings
Boeing finds itself at a crossroads today: production of its vaunted 737 Max – which sold for between $100-135 million apiece in 2020 – remain paused for the 20th consecutive month after airlines operating the MAX variants grounded most of them following two fatal crashes. The root cause has been determined to be electrical problems that require extensive retrofits be made. On the other hand, the Max’s wide-body counterpart, the 787 Dreamliner – which sold for between $240-300 million apiece in 2020 – resumed deliveries in March this year, following a 5-month pause due to a different manufacturing flaw.
Until the Max’s production hit the roadmap, a number of airlines in Europe – which traditionally favour Airbus over Boeing – had been positively inclined towards acquiring Boeing’s narrow-body Max. With the pandemic grinding international travel to a shadow of its former self, both Boeing and Airbus have witnessed outright cancellation or downgrading of placed “confirmed” orders into “options” (a right to buy in the future but not an obligation).
In terms of products, the Max has a range of 6,000-7,000 kilometres while the Dreamliner has a range of 13,000-14,500 kilometres. Problems with the Max have created opportunities for the Airbus A321 family of jets to take orders away from Boeing. U.S.-based JetBlue chose the latter for its short-distance transatlantic service. American Airlines and United Airlines – two of the largest customers Boeing had serviced in its past – have also ordered Airbus aircraft to modernise their fleets.
Boeing’s signature wide-body 777 family – with a range of 15,000-17,000 kilometres, is the most-produced Boeing wide-body passenger jet in its history. Its latest variant, the 777X, has been suffering from lack of orders and cost overruns after Lufthansa, Emirates, Qatar Airways, and Etihad Airways formally committed to buying this latest variant. On May 17 of this year, Emirates expressed its desire to convert at least a portion of its order from the 777X to the cheaper and smaller Dreamliner instead. </p.
Boeing has 4,045 planes on backorder, close to 3,200 of them for Max jets and 433 for Dreamliners as of the end of April. However, it is currently dwarfed by the number of deliveries placed by Airbus:
Flight Path Ahead
It bears noting that backorders for Boeing’s Max variants makes it evenly matched against rival Airbus. To bridge the yawning gap between the Max and the Dreamliner – which Airbus has been exploiting for quite some time now – Boeing had announced the revival of its plan for a new jet after scrapping an earlier midsize aircraft concept last year.
To be fair, this gap was earlier plugged by the 757 and 767 families of jets which were introduced nearly 40 years ago. Most of these jets were delivered to passenger airlines before 2002. Since Boeing had then moved on to long-haul jets, this space had fallen vacant and prey to Airbus, which serviced the budget airlines operating these routes. Airbus’ upcoming A321XLR – which has already captured a substantial chunk of the 757 and 767 replacement business – is only slightly larger than the 737 MAX 10 but has a range of 8,700 kilometres (enough to serve the U.S.-Brazil, Europe-India, Asia-Australia and some transatlantic routes as an example).
A purpose-built Boeing jet bigger than the Airbus A321XLR and with more range would be a superior choice for an airline looking to replace its 767s and capturing growth opportunities on mid-range routes that are traditionally filled by Airbus jets. However, there are three problems with this route:
A means of capturing and retaining the mid-range gap would likely be by cutting the selling price. In this regard, Boeing has a distinctive advantage in terms of net cash:
It is a testament to Boeing’s strong brand appeal that, despite these issues, it continues to have more orders than cancellations month after month. While the Max’s production is indeed halted right now, rectifying existing issues would likely lead to an even bigger boom in orders.
Boeing (NYSE: BA) is a constituent of the S&P 500 (SPX). Since the year began, the company significantly outperformed the index until recent corrections triggered by the delays in rectifying the faults found in the Max:
A shrewd investor would likely be able to formulate a strategy that delivers the best value by following news around Boeing’s successes in plugging the faults that has caused its flagship jet so much woe as well as Airbus’ success in its budget airline strategy.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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