Shares of Boeing (NYSE: BA) got a lift on Tuesday after major customer Southwest Airlines (NYSE: LUV) said it was working with the aerospace giant on a plan to return the grounded 737 Max to service. Boeing shares traded up about 5% mid-morning.
Airlines have been hit hard by the pandemic, which has cut travel demand by upwards of 90%, and that is sure to impact new plane sales as well. The slowdown comes at a particularly difficult time for Boeing, which has seen its cash balance drained due to ongoing issues with the 737 Max and faces questionable demand for the once sought-after plane if and when it does get the aircraft flying again.
Image source: Boeing.
Southwest operates an all-Boeing fleet and is seen as one of the aerospace manufacturer's most important customers. In its first-quarter earnings release, the airline said it has parked about 350 aircraft and intends to slow growth, but its comments suggest it is still committed to the Max.
Southwest said that as soon as the Federal Aviation Administration gives the green light for the Max to fly again, it will "work closely with Boeing and the FAA to safely reintroduce" the 34 Max aircraft it currently owns. Southwest said it will likely take delivery of fewer than 27 Max aircraft this year, and "will continue partnering with Boeing on a sensible delivery schedule."
Boeing shares are also likely up on the company announcing plans to reopen its South Carolina manufacturing operations. The South Carolina facilities are much smaller than the company's Puget Sound operations, and only manufacture the 787 Dreamliner, but the reopening is still a positive development.
Admittedly, there isn't a lot of fantastic news in the Southwest commentary: The airline is still looking to shrink, not expand, and is rethinking its order book. But there is an absence of terrible news for Boeing in the release, which these days is better than nothing.
Add in the reopening of manufacturing and airline green shoots including Southwest and Delta Air Lines both finding success in raising additional liquidity, and the worst-case scenario for Boeing -- airlines going bankrupt and demand going to zero for an extended period of time -- seems unlikely.
Still, Boeing has a difficult few years ahead and could be facing a lost decade in terms of new plane sales. There is still ample reason for investors to avoid this stock.
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