It’s hard to think of any great enterprise that has fallen as far, as fast as the Boeing Company. Just over a year ago, the 104-year-old aircraft and defense manufacturer was ramping up deliveries on its signature product, the super-fuel-efficient 737 Max, a huge hit boasting 5,000 orders, and its earnings, sales, and margins were all headed for records. Wall Street was sold that Boeing had entered a new era of enduring profitability. In just three years, its stock had jumped 300% to over $400 per share. “Over the years, Boeing has established a lead in efficiency and margins over it sole major rival AirbusAirbus,” says Craig Fraser, an analyst for Fitch Ratings. “Then, Boeing went from the best to the worst of times overnight.”
The descent began in March of last year after a Max operated by Ethiopian Airlines crashed because of a software malfunction—the airliner’s second fatal disaster in six months—which brought the death toll to 346. The federal authorities ordered the Max grounded, and revenues from the plane that was supposed to be Boeing’s biggest revenue-and profit-spinner fell to virtually zero. In 2019, as its airline customers were enjoying the best year in their history, Boeing took a $4.9 billion charge for delaying deliveries of the Max and went from generating $8 billion in free cash flow in 2018 to burning $10 billion last year, one of the biggest sudden swings in the annals of manufacturing.
The Max crisis was already certain to undermine Boeing’s profitability and swell its debt at least into 2021 before the second catastrophe struck. Now the COVID-19 pandemic is hammering revenues of its airline customers by as much as 80%, forcing them to postpone, or in some cases cancel, their scheduled Max deliveries. In the best-case scenario, where the Max is ungrounded this summer, Boeing over the next couple of years will ship less than two-thirds of the huge volumes forecast before the onset of the pandemic. An estimated 50% of the world’s 26,000 commercial aircraft are parked out of service, a pullback that has savaged Boeing’s $17 billion services franchise that supplies parts and repairs for carriers. Jonathan Root of Moody’s Investor Service forecasts that Boeing will bleed $30 billion in cash flow in 2020 and end the year with over $60 billion in debt, four times the figure at the close of 2018.