Boeing Gets Huge MAX Order From United. It’s a Bigger Deal Than the Latest Bad News.
A Boeing 737 MAX 10 jet.
Stephen Brashear/Getty Images
Boeing, and Boeing investors, got a bit of good news as United Airlines announced an order for 200 more 737 MAX jets. That lifted Boeing shares, but they still haven’t recovered all of Monday’s losses, which, frankly, doesn’t seem to make a lot of sense.
Boeing (ticker: BA) stock was up about 1% in premarket trading. Dow Jones Industrial Average futures, for comparison, were up about 0.1%. S&P 500 futures had fallen slightly.
A new, large MAX order is obviously good news for the aircraft maker. Vertical Research Partners analyst Rob Stallard called it a “MONSTA” order in a Tuesday research note.
The MAX was recertified to fly in the U.S. and Europe in December after being grounded since March 2019 following two deadly crashes within five months. United’s order shows airlines still have confidence in the MAX and are moving past the plane’s recent problems.
“We are truly humbled by United Airlines’ confidence in the people of Boeing and the airplanes we design and build every day,” said Stan Deal, president and CEO of Boeing Commercial Airplanes, in the company’s news release. “The Boeing team is excited to be building hundreds of these new jets for United and delivering on a landmark agreement that solidifies our future together for the next decades.”
The order also includes 150 of the largest version of the MAX, dubbed the 737-10. Credit Suisse analyst Robert Spingarn told Barron’s that the largest version of any aircraft family, such as the MAX, typically has the lowest operating costs. A new order for the 10-version of the MAX is another vote of confidence in the plane from Boeing’s airline customers.
Boeing hasn’t started delivering the larger MAX jets yet. That’s still several quarters away.
Tuesday’s gains follow on Monday’s losses for Boeing stock. Shares dropped 3.4% after news emerged that the Federal Aviation Administration had told Boeing in a May letter it didn’t expect to approve the company’s new 777x aircraft until 2023. That’s a long way off, which may be why investors reacted negatively, but 2023 is when Boeing had said it expecting the plane to be certified.
“We are still confident [the 777x] will be certified in the fourth quarter of 2023,” said CEO Dave Calhoun in early June. “We’ve incorporated all the timeline learning that we could possibly incorporate from the MAX [recertification] and the architectural preferences that both the FAA and the [European regulator] has embedded in their regulations.”
There really isn’t much difference between what investors should have expected and what regulators said to the company recently. What is more, the MAX is a bigger deal than the 777x. The MAX is Boeing’s newest, highest-volume plane. Getting MAX production, deliveries, and costs right will have a big impact on Boeing’s cash flow and profits for years to come.
Still, investors can’t be blamed for being sensitive to FAA letters to Boeing given the company’s long struggle to persuade the regulator to allow the MAX to carry passengers again.
The order is good news for Boeing, but it also shows United believes travelers will come back. That’s good news for the entire industry.
U.S. air traffic, in June, is still roughly 25% below its level before Covid-19 Boeing stock is up about 12% year to date, but about 45% below their level before the grounding of the MAX and the pandemic.
