Boeing Falls Short of Q1 Market Expectations... "Long-Term Approach Remains Valid"

[Asia Economy Reporter Minji Lee] American aircraft manufacturer Boeing is experiencing a decline in its stock price after posting first-quarter results that fell short of market expectations. Recently, concerns have arisen that aircraft deliveries may be delayed following a corrective order from the U.S. Federal Aviation Administration due to power system defects.

On the 2nd, Boeing's stock price closed at 234.31 as of the 30th, marking a decline of about 9.6% since the beginning of the month. The announcement of first-quarter results below expectations, coupled with forecasts of potential delays in aircraft deliveries due to power system issues, is analyzed to have negatively impacted the stock price.

In the first quarter, Boeing recorded sales of $15.22 billion, exceeding market expectations by 0.7%, but posted an operating loss of $83 million, continuing its deficit. The reason for missing the market expectation of a $50 million loss was that the resumption of deliveries for the 787 model, which had been halted since October last year, began later than expected in March this year, thus not contributing to performance improvement. The Commercial Airplanes (BAC) division recorded sales of $4.27 billion, down 31.2% compared to the same period last year.

The Defense, Space & Security (BDS) division posted sales of $7.19 billion, up 19% from the same period last year, showing solid performance. It secured new orders worth $7 billion from the U.S. Department of Defense, including 27 KC-46A aerial refueling tankers and 8 P-8A early warning aircraft, bringing the backlog to $61 billion, an increase of about 1% from the previous quarter.

Following the first quarter, the commercial aircraft sector is expected to continue its sluggish performance into the second quarter. Although Boeing delivered 58 units of the 737 Max and secured new orders for 22 units of the 747 Max in the first quarter after operations resumed at the end of last year, production disruptions of key models are anticipated.

Researcher Hyungjun Park of Samsung Securities explained, “Recently, a power system defect was discovered, leading to the suspension of operations for 106 aircraft of the same model, and delivery suspensions to resolve the issue make a reduction in second-quarter deliveries inevitable.” He added, “Although deliveries of the B777 Dreamliner, which had been halted due to manufacturing defects since the end of last year, have resumed, the ongoing sluggishness in the commercial aircraft sector and production disruptions of key models will continue to delay performance improvements.”

Despite the stock price decline due to the power system defect issue, the possibility of the situation worsening is considered low. Researcher Hanwi from NH Investment & Securities stated, “Although about 300 undelivered 737 MAX aircraft require problem resolution, since the electrical system issue is not due to design or engineering errors, the potential for worsening or prolonging the situation is limited.”

A full-scale recovery in performance is expected to begin in the second half of the year as domestic travel demand in the U.S. recovers due to expanded COVID-19 vaccinations. According to the U.S. Transportation Security Administration, the daily number of travelers last month reached 1.4 million, the highest since the pandemic began. Considering that over 50% of passenger revenue for the three major U.S. airlines comes from domestic flights, performance improvements driven by demand recovery are anticipated, along with increases in aircraft deliveries and new orders. Researcher Hanwi said, “With the Chinese government expected to approve the resumption of 737 Max operations in the second half of the year, about 200 units of 737 Max inventory could be delivered by the end of this year,” adding, “As vaccine supply accelerates, the aviation industry is expected to reach a turning point this year.”

This content was produced with the assistance of AI translation services.