Roughly 19 months after the Boeing Co (NYSE:BA) 737 Max was grounded due to safety concerns, regulators have finally once again cleared the aircraft for takeoff.
What Happened? On Friday, the European Union Aviation Safety Agency said Boeing’s safety changes to the 737 Max are satisfactory, and the planes can return to the skies before the end of 2020. The clearance comes despite the fact that a software upgrade the regulator previously demanded from Boeing has not been implemented and may not be available for another two years.
Why It’s Important: The 737 Max was originally grounded back in March 2019 following two crashes that killed a total of 346 people. Since then, Boeing’s stock price has plummeted 61.6%.
Throughout 2020, Boeing has struggled with a shrinking backlog of plane orders as global air travel has plummeted due to the pandemic. Boeing delivered just 11 planes in the month of September and has delivered only 98 planes year-to-date through the first three quarters of 2020. That delivery rate is about a third of its 2019 pace.
In addition, a steady stream of order cancellations by major airlines has consistently shrunk Boeing’s backlog throughout the year. Boeing received no new orders in September, recorded three 737 Max order cancellations and removed another 48 planes from its backlog during the month. Boeing’s backlog has now shrunk by 980 total planes this year, falling to just 4,325 units.
The 737 Max is a critical part of that remaining backlog and the potential rebound thesis for Boeing stock, accounting for 3,403 of Boeing’s remaining orders.
“We estimate 2021 sales at 74% of 2018 level, aided by MAX resumption, deferral of non-737 deliveries into 2021 from 2020, and stable Defense and Space revenues from government customers,” CFRA analyst Colin Scarola said in September.
Benzinga’s Take: Boeing shares gained 3.3% Friday on the news out of Europe. Investors will now be watching to see if and when the 737 Max gets the all-clear to return to the skies in the U.S.
Photo by Steve Lynes via Wikimedia.