Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Boeing Still Make Money?

Coroanvirus could be fatal to Boeing (NYSE: BA) because demand for airliners is collapsing.

For instance, the Irish plane-leasing company Avolon cancelled a $3.8 billion order for 75 737-MAX airliners, The Seattle Times reports.  The Seattle Times describes Avolon as one of Boeing’s top 20 customers.

Avolon is slashing its order book by 40% and ending orders for up to 25 other Boeing planes, The Seattle Times reports. Hence, Boeing only has orders for 55 of the 737 MAX planes on the books.

Boeing Shuts down indefinitely and Resumes Production

The Boeing Co. (NYSE: BA) is resuming some production while making a plant shutdown indefinite.

Dramatically, 30,000 Boeing employees must take sick time or vacation or apply for unemployment, The Seattle Times reveals. The employees work at Boeing plants around Seattle that closed on 25 March 2020.

Hence, production of 737 MAX planes for which Boeing has no customers is stalled. However, some Boeing production in Seattle could resume as early as 13 April 2020, The Seattle Times claims.

Consequently, Boeing could recall 2,500 employees to work on two military contracts. The contracts are the U.S. Navy’s P-8 antisubmarine plane and the U.S. Air Force’s KC-46 flying tanker. In addition, some maintenance work related to 737 MAX production could resume.

Therefore, Boeing is still in business and servicing its most reliable customer: The Pentagon.

Is Air Travel Dying?

Boeing (NYSE: BA) could be in danger because air travel is collapsing.

The number of U.S. air travelers fell by 95% to less than 100,000 people, Bloomberg News claims.  Specifically, the Transportation Security Administration (TSA) estimates 97,130 passed through America’s airports on 7 April 2020. Bloomberg claims American air travel is at its lowest level since the 1960s.

Incredibly, the number of air passengers dropped to 94,931 on the next day, The Points Guy estimates. In contrast, the TSA estimates there were 2.2 million passengers on 8 April 2019.

The Travel Bubble bursts, is Boeing doomed?

Therefore, Americans are learning to live without air travel. That could be fatal for Boeing and airlines because I think air travel and tourism were bubbles before the COVID-19 outbreak.

For instance, the historic British travel operator Thomas Cook collapsed because it could not get $250 million in loans in September 2019. Thomas’s Cook’s collapse stranded 600,000 travelers worldwide, Time estimates.

I think Thomas Cook’s collapse shows travel and tourism were bubbles that were bursting before COVID-19. Instead of bursting the pandemic blew the travel bubble away.

If travel is dead, Boeing’s future is in doubt because the company’s signature product is airliners. Hence, the demand for airliners could be far lower.

Is Boeing Doomed?

Boeing (NYSE: BA) was in big trouble before Coronavirus. For instance, Boeing reported a negative quarterly gross profit of -$784 million on 31 December 2019.

Additionally, Boeing reported a -$2.204 billion operating loss and a -$1.007 billion common net loss for the last quarter of 2019. Moreover, Stockrow estimates Boeing’s revenue growth fell by 36.8% in the same quarter.

Plus, Boeing reported an operating “cash flow” of -$2.22 billion and an ending cash flow of -$278 million for that quarter. Meanwhile, Boeing reported a $1.403 billion financing cash flow on 31 December 2020. Hence, Boeing borrowed $1.403 billion that quarter.

These numbers show Boeing was losing a lot of money before coronavirus. Thus, I cannot see how Boeing can survive without some sort of government bailout.

What Value Does Boeing Have?

However, Boeing still has a lot of value left. For example, Boeing had $10.03 billion in cash and short-term investments on 31 December 2019.

Impressively, Boeing had $133.625 billion in total assets on 31 December 2019. Unfortunately, many of those assets are airliners for which there could be no market. Additionally, many of those assets are factories for the production of airliners.

Notably, Delta Airlines (NYSE: DA) is mothballing 600 planes, Newsweek claims. Hence, there could be no market for airliners for over a decade.

Can Amazon Save Boeing from Oblivion?

Strangely, Boeing (NYSE: BA) could have an improbable savior in the form of Amazon (NASDAQ: AMZN). Amazon is growing like a weed and buying cargo planes when passenger air travel is collapsing.

For example, Amazon could spend $1.5 billion to build a three million square-foot Prime Air Hub at the Cincinnati/Northern Kentucky International Airport, Construction Dive reports. The Prime Air Hub will host a fleet of over 100 cargo planes. Notably, Amazon is leasing 900 acres of land at the Cincinnati/Northern Kentucky International Airport for 50 years.

Moreover, Amazon plans a 2.6 million square foot distribution center at the Oklahoma City Airport, The Oklahoman reports. In detail, Amazon will lease 69 acres from the Oklahoma City Airport Trust for 40 years.

Amazon could be Boeing’s Future

Thus there is a growing market for Boeing’s products at the fast growing Amazon.

Accordingly, Amazon hired Sun Country Airlines to operate 10 converted Boeing 737-800 passenger liners, CBNC reports. Interestingly, Sun Country was in the tourist or leisure travel business but it is transitioning to cargo hauling. Thus, at least one airline was transitioning from passengers to cargo before COVID-19.

Under those circumstances, I think Boeing’s big new business will be to convert mothballed airliners into freight haulers. There will be a lot of demand for those cargo carriers because Amazon is growing at an insane pace.

Notably, Google searches for Amazon were at near holiday levels in March, Vox Recode claims. Additionally, sales at Amazon’s biggest US rival Walmart (NYSE: WMT) are skyrocketing.

Online Retail is Boeing’s Future

Dramatically, foot traffic at non-grocery stores in the US fell by 97% during the last two weeks of March 2020, Recode claims. Additionally, Walmart’s sales rose by 20% in the same period.

Plus, consumer spending at Amazon grew by 35% between March 2019 and March 2020, Facteus claims.  Facteus is a data analysis firm that claims to survey over 30 million credit card transactions each day. Tellingly, Amazon hired 80,000 new people to meet demand at its fulfillment centers in March and April 2020, Recode claims.

Therefore, Amazon owns American retail and it will need cargo planes that Boeing can provide. Beyond Amazon, other retailers such as Walmart will grow their online business requiring more cargo planes.

On the other hand, we do not know how many cargo planes Amazon and competitors will buy or use. Notably, there are serious impediments to expansion of the air-cargo system.

For instance, the demand for passenger air travel limits the number of fulfillment centers and cargo airports. Yet there are dozens of airports sitting empty around the United States. Hence, many local governments will try to convert their airports into cargo hubs. Consequently, the demand for cargo planes could increase.

Does Boeing have a Future?

Yes, Boeing (NYSE: BA) has a future, but that future is rocky and uncertain. Therefore, I think Mr. Market overpriced Boeing at $145.98 a share on 15 April 2020.

On the other hand, Boeing paid a $2.055 quarterly dividend on 13 February 2020. Thus, I think Boeing is still a great stock investors need to watch. My advice is to buy Boeing if it drops below $100 a share.