Boeing's 737 Max Production Cut Has Analysts Skeptical of Timing
Boeing's 737 Max Production Cut Has Analysts Skeptical of Timing
(Bloomberg) -- Boeing Co.’s fallout from two 737 Max crashes continued with the aircraft-maker cutting production for the plane model by 19 percent. While the announcement is unsurprising to analysts, its timing--days before Boeing was to submit its software fix for the plane--raises additional concerns about when the aircraft will take flight again.
Shares of Boeing fell as much as 4.3 percent Monday, the most since March 12. As Bank of America cut the stock to neutral, Morgan Stanley, Credit Suisse and Citigroup analysts also offered fresh takes.
Here’s what analysts said about Boeing’s latest steps:
Morgan Stanley, Rajeev Lalwani
“There was a confluence of factors driving the cut in production,” Lalwani said, noting challenges of sustaining production of 52 planes per month along with increased manufacturing process pressure with the tested fixes.
Under the assumption that the 737 production stays at 42 models per month until the end of the third quarter, he said “we remain patient.” Similarly, he expects shares to rebound and Boeing’s multi-year cash flow growth story to continue once the grounding ends.
“Regardless, we believe that with the primary cause essentially identified and a software fix set to be submitted over the coming weeks, regulators may be in position to certify it in late 2Q19/3Q19.”
Cowen, Cai von Rumohr
Says the production cut “makes sense” and should help resolve the 737 Max crisis, but at the price of a “sizable, albeit still hard to quantify, financial penalty to 2019 results.” He remains confident in software update and its training, but says the required FAA approval and testing could delay Max deliveries until June.
On top of the delay, he sees Max deliveries falling to about 500 from the company’s original target of 630.
Reiterates Outperform; cuts price target to $460 from $475
Credit Suisse, Robert Spingarn
“We believe this action will benefit cash flows somewhat...To some extent, given that BA is not delivering any planes, we think the company could have justified reducing production further,” said Spingarn.
He also says the rate of 42 planes per month could be an effort to limit supplier disruption, but notes that the announced production update doesn’t immediately impact revenue or earnings since Boeing wouldn’t be delivering the 737 Max jets.
As Boeing identified a second software issue, he said, “it is difficult to asses whether this impacts path/timing to recertification,” though he suspects it adding greater scrutiny.
To contact the reporter on this story: Gerald Porter Jr. in New York at gporter30@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Morwenna Coniam
©2019 Bloomberg L.P.