Boeing has had perhaps the roughest 2020 out of everyone, with the company logging record losses this year. Add to the mix the company’s pre-existing troubles before COVID-19, and you’ve got an outright mess — and the future’s not looking so great either.
The aerospace giant ended its third quarter with a net loss of $466 million, compared to earning over a billion dollars in profit at the same time last year, which was itself not a great year for the company due to the grounding of the 737 MAX jets. The company also reported a 29% decline in revenue for the quarter ending in September, citing a drop off in demand for new jets.
Following the third-quarter earnings results, Boeing’s stock fell 3.5%, contributing to the nearly 57% decline in share value year-to-date. In the last nine months during the pandemic, Boeing’s sales have plummeted 27%, to $42.8 billion, a majority of which was brought in through their defense and space program. The entire industry is projecting a long recovery period, with analysts predicting flight levels will likely not get back to pre-covid levels until the second half of this decade.
This year was a banner year for losses, layoffs and overall industry decline across sectors, but none was hit as hard as the aerospace industry. Unlike other industries that have shifted their strategies, the aviation sector can’t adjust to the current market as well as others due to its dependency on global air traffic, which is down 66% this year.
While it waits for the industry to recover, Boeing has made multiple attempts to stop the bleeding cash flow, taking drastic steps to cut costs including production reduction, consolidation of lines, and massive layoffs. Boeing, which started the year with approximately 160,000 employees, plans to cut nearly one fifth of its workforce by the end of 2021.
While those steps are aggressive and perhaps what is needed at the moment, it raises concerns about Boeing’s future. Boeing’s restructuring, if done right, can make the company highly efficient and bump the share price as investors see long-term value. However, many things need to happen before investors are confident about the company again.
For one, the MAX has to fly again. Boeing’s existing problems with its grounded 737 jetliners has exacerbated the impact of the aviation industry’s crash during the COVID-19 pandemic and kept it from moving forward. The latest generation of the 737 was Boeing’s best product and the line has been the best-selling commercial airplane in the industry for half a century. That record came to a crashing halt when the narrow-body jet was grounded in March 2019 after a series of fatal accidents.
The plane is currently undergoing a recertification process by the FAA that will determine when it can go back in the sky, but the process has been delayed due to COVID-19. Once it gets re-certified, the process to make the necessary fix to the existing 737’s will undoubtedly take time, as will the delivery of the 450 finished jets currently stored in inventory. Boeing expects to deliver half of the aircrafts in storage by the end of 2021 and the rest by the following year, extending the previously announced timeframe.
The re-flight of the MAX is crucial to Boeing’s comeback prospects because it opens the door to new possibilities. Once recovery is well underway, investors will be looking for new products from Boeing, which will serve a significant role in pulling Boeing out of its current hole. With the current cuts and restructuring, industry analysts are concerned about whether Boeing will be able to maintain capabilities for the future. Airbus, its direct competitor, has been gaining share in the middle markets, raising questions on when Boeing will come up with next generation type products that can compete.
At the end of the day, Boeing and the entire industry is powerless to the current market. Though Boeing will have a particularly hard time recovering from the pandemic, considering their pre-existing issues, it’s not completely off the table if they play their cards right. Aside from taking steps to cut costs, all they can do is hold out hope for the development and distribution of a coronavirus vaccine that will give people the confidence to travel again and jumpstart the company’s recovery.