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Boeing and Muilenburg: Turbulence Ahead

MyWallSt Staff, The Motley Fool

This article was first published by MyWallSt.

All air travel puns aside, there are very few people who haven't heard at least something about the world's largest aircraft manufacturer's problems in the past year.

Some folks have no issues with airplane travel, but for others it's a nerve-wracking experience. How much worse must it be when the plane maker they trust, Boeing (NYSE: BA), has had two planes fall from the sky within six months of one another. Last October, a Boeing MAX passenger jet crashed in Indonesia, and in March this year, another went down in Ethiopia, with 346 people on board.

Not only this, but the defensive reaction of Boeing CEO Dennis Muilenburg in the wake of these disasters has not helped build customer trust back up. Since the plane was grounded in early 2019, there has been an obvious dip in both consumer and investor confidence, but the company has still stood strong. Its value has remained stable, and Boeing has even received orders for its improved 737 MAX jets since the grounding.

A airplane in flight

Image source: Unsplash.

However, there is still a threat to 2019 earnings, according to a recent report by industry data provider FlightGlobal, which has dropped its valuation of a brand-new Boeing 737 MAX by 5% to $45.7 million per plane. This is more than half off the price of the average MAX plane, which normally lists for more than $100 million. Conversely, Boeing's main competitor, Airbus, has had its A320neo jet appraised at roughly $50 million.

At the June Paris Air Show, CEO of GE Capital Aviation Services Alec Burger pointed out that there has never been more competition in the narrow-body aircraft game, with over 150 serious competitors. This, along with the lower valuation of the 737 MAX, does not point to stellar profit margins.

However, this is not a killer blow to Boeing. Despite the grounding and lower valuation, IAG -- parent company of British Airways and Iberia -- made its intentions known for an order of 200 737 MAX aircraft, which is a loud vote of confidence in the aircraft's new safety features. Many of the issues following on from from these disasters stem from the way Muilenberg has handled the situation. His belated apology to the families of the two disasters' victims did not go down well, and morale at the company, as well as among customers, is low (remember the importance of good company culture). It's now up to him to rebuild the trust the company has maintained for over a century.

The IAG deal has bought time for the company to maintain control, and the current share prices of the $210 billion giant imply that investors are still behind it. From here, the handling of the situation by upper management such as Muilenburg will dictate the public image of Boeing. If the company is to come through this troubling time intact, its CEO needs to step up, or else it will need to find someone else who can.

The captain may go down with the ship in many cases, but the ship will not go down with its captain here.

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