The COVID-19-driven Airline Apocalypse could destroy Boeing (BA). Boeing management admits they will have to eliminate 30,000 jobs.
Moreover, Boeing (NYSE: BA) will end production of one of its signature products; the 747 airliner, in 2021, The Guardian reports. Instead, Boeing is concentrating on getting its troubled 737 Max model back into service.
Boeing cut 16,000 jobs in April 2020 at the beginning of the coronavirus pandemic. Management expanded the job cuts to 19,000 in July when they killed the 747. Now management admits it will have to eliminate an additional 11,000 jobs bringing job cuts to 30,000, The Guardian reports. Consequently, Boeing’s workforce could fall to 130,000 from 160,000.
The Airline Apocalypse
The growing Airline Apocalypse puts Boeing’s future in doubt. For instance, 193 of Europe’s commercial airports face insolvency because of drops in passenger traffic.
“Eight months into the crisis, all of Europe’s airports are burning through cash to remain open, with revenues far from covering the costs of operations, let alone capital costs,” Olivier Jankovec said. “Governments’ current imposition of quarantines rather than testing is bringing Europe’s airports closer to the brink with every day that passes.”
Jankovec is the director general of the Airports Council International Europe (ACI Europe). The ACI Europe is the trade organization for Europe’s 740 commercial airports, The Guardian reveals. In many European countries, airports are for-profit businesses.
Passenger traffic at European airports fell by 75% between September 2019 and September 2020, ACI Europe estimates. ACI Europe estimates the passenger count at European airports fell by 1.3 billion over the last year.
Moreover, the top 20 European airports have borrowed €16 billion ($18.80 billion) to finance their operations during the coronavirus pandemic, ACI Europe claims. The airports’ debt is equivalent to 60% of their revenues for a normal year, Jankovec claims.
The data shows that an airline or airport recovery is improbable. The volume of international air travel could fall from 4.5 billion passenger in 2019 to 2.3 billion in 2020, CNN Business estimates. Airline industry insiders do not expect air travel to return to the 2019 level until 2024.
Coronavirus Surges Air Travel Dies
In the United Kingdom, things are so bad that the Conservative government is threatening to nationalize London’s Heathrow to keep that airport, The Sunday Telegraph claims. However, Britain’s Civil Aviation Authority claims The Sunday Telegraph’s report is false.
I think ACI Europe’s numbers show air trouble will not recover soon. Indeed, I predict passenger air travel will plunge again as the coronavirus infection rate rises.
Frighteningly, global aviation-related economic activity could fall by 52%, CNN Business predicts. CNN Business claims the airline industry will lose 1.3 million jobs and $1.8 trillion in global gross domestic product (GDP) to coronavirus.
The number of coronavirus cases in Europe rose by 33% during the week of October 12-19, The World Health Organization (WHO) estimates. Moreover, coronavirus rates grew by over 50% in 22 American states and Puerto Rico, The Washington Post claims. Moreover, the United States recorded a record 500,000 new coronavirus cases on 28 October 2020, The New York Times reports.
Air travel is down because most countries have restrictions on travelers. The United Kingdom requires a 14-day quarantine for American visitors, for example, CNN reports. Meanwhile, the European Union is barring American tourists. In addition, Americans cannot travel to Japan and Canada.
Will the Airline Apocalypse Kill Boeing?
Predictably, Boeing (NYSE: BA) is struggling for survival. For instance, Boeing has lost over half its share value in 2020.
To elaborate, Mr. Market was paying $333.32 for Boeing shares on 2 January 2020 and $144.39 for Boeing on 30 October 2020. Investors are dumping Boeing, and it is easy to see why.
Boeing reported a negative quarterly gross profit of -$1.16 billion and a quarterly operating loss of -$2.964 billion on 30 June 2020. Moreover, Boeing’s quarterly revenues fell from $17.911 billion on 31 December 2020 to $16.908 billion on 31 March 2020 to $11.807 billion on 30 June 2020.
Moreover, Boeing began 2020 with a quarterly operating loss of -$2.204 billion on 31 December 2019. That quarterly operating loss fell to -$1.353 billion on 31 March 2020 and grew to -$2.964 billion on 30 June 2020.
Boeing Shrinks before our Eyes
Astonishingly, Stockrow estimates Boeing’s revenue growth shrank by 36.8% in the quarter ending on 31 December 2020. The revenue growth shrank by 26.22% in the quarter ending on 31 March 2020 and 25.04% in the quarter ending on 30 June 2020.
Boeing’s business and cash flow are shrinking before our eyes. Boeing began 2020 with a negative quarterly cash flow of -$2.22 billion on 31 December 2020. The negative quarterly cash flow fell to -$4.302 billion on 31 March 2020 and -$5.28 billion on 30 June 2020.
Moreover, Boeing is borrowing enormous amounts of money to stay in business. Boeing (BA) reported a quarterly financing cash flow of $10.28 billion on 31 March 2020. That quarterly financing cash flow grew to $22.462 billion on 30 June 2020.
I think Boeing only had an ending cash flow of $4.953 billion on 30 June 2020 because of all the money it borrows.
Why Boeing will survive
Boeing (BA) will survive because it is a cash-rich company. Boeing had $32.43 billion in cash and short-term investments on 30 June 2020. Boeing’s cash and short-term investments grew from $15.527 billion on 31 March 2020 and $10.03 billion on 31 December 2019.
Plus, Boeing’s total assets grew from $133.625 billion on 31 December 2019 to $143.075 billion on 31 March 2020 to $162.872 billion on 30 June 2020. Thus Boeing appears to a value investment because it has a falling stock price but rising cash and value.
However, Boeing has not paid a dividend since 13 February 2020 when it made a quarterly payout of $2.055. Thus Boeing is a good dividend stock that is cheap.
What Future Does Boeing have?
I think Boeing (BA) could have a bright future because of its military and space products. However, some of those products have a questionable future.
Boeing has some impressive projects in the pipeline, such as the CST-100 Starliner space capsule. However, they have not yet tested the Starliner, unlike its competitor the SpaceX Dragon.
Moreover, astronaut Christopher Ferguson has pulled out of the first manned Starliner mission. Instead, three NASA astronauts will make the flight, The Verge reports.
Thus one of Boeing’s signature products has a questionable future. Ferguson’s pullout raises the possibility that the design flaws that grounded the 737 Max could destroy the Starliner project.
One obvious scenario that investors need to consider is that Boeing is no longer capable of completing technically complex projects such as Starliner and 737 Max. On the other hand, if Boeing (BA) could get its act together, I think it could be a moneymaker.
Investors need to avoid Boeing (NYSE: BA) until the aerospace giant can prove it has solved its problems. If Boeing could transition from an airliner manufacturer to a space and defense company, it can survive and make money. Stay away from Boeing until it solves its problems, because the airline apocalypse could take this company down.
Originally published at https://marketmadhouse.com on October 30, 2020.