Shares in aerospace and defense giant Boeing (NYSE: BA) fell by 12.5% in September, according to data provided by S&P Global Market Intelligence. The fall comes as Boeing’s management failed to reach an agreement with the International Association of Machinists and Aerospace Workers (IAM) Union District 751 over a new contract.
The failure to reach a quick agreement resulted in an ongoing strike action, which is still unresolved. Unfortunately, it’s the last thing Boeing needs right now as it plans to ramp up airplane production and return the company to generating cash flow.
As you can see, deliveries of Boeing’s narrowbody 737 declined significantly in the first half of 2024 as manufacturing quality issues forced management to slow deliveries. Management’s plan was to get back to a rate of 38 a month by the end of the year.
Data source: Boeing presentations. Chart by author.
In mid-September at the Morgan Stanley Laguna Conference, CFO Brian West was asked about the plan to hit 38 a month in light of the ongoing strike action, and what he said, or rather what he didn’t say, spoke volumes: “Yeah. I can’t comment on 38 per month. That rate is so dependent upon the duration of the strike. So, I won’t touch on that.”
Given this kind of commentary, it’s safe to assume that Boeing’s assumption of a delivery rate of 38 a month on the 737 by the end of the year is under severe pressure.
As discussed, Boeing’s defense business has been a serial disappointment in recent years. As such, it doesn’t come as a shock that one of new Boeing CEO Kelly Ortberg’s first acts is to oust Boeing’s CEO of Defense, Space & Security Ted Colbert with immediate effect on Sept. 20. The move highlights the issues the defense business has had with a string of charges and losses on fixed-price development projects.
Image source: Getty Images.
The company undoubtedly faces challenges, and there are question marks around its ability to fund the next generation of narrowbody airplanes in the next decade. Still, its multiyear backlog ensures that Boeing has the potential to overcome its difficulties. A swift resolution to the contract negotiations will help. New CEO Ortberg is a highly respected figure in the aerospace industry, and a new head of defense could also help turn matters around.
All this means it’s in management’s hands to engineer a turnaround.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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