Boeing Co. (BA) is poised to delay its all-new 777X jet by several months or up to a year as the COVID-19 crisis exacerbates a drop in demand for the industry’s largest jetliners, Reuters reported.
Boeing hopes to bring the jet to market as it awaits for passenger travel to resume after a downturn caused by the coronavirus pandemic. However, stretching out the development opens up fresh risks for the plane maker, such as losing engineering attention and momentum, and tougher scrutiny from the U.S. Federal Aviation Administration during the years-long certification process.
A delay could also mean problems for Boeing’s supply chain. An announcement of the delay could come as early as this week when Boeing announces earnings.
Reuters said that Boeing declined to comment on the 777X timeline. It said it was continuing flight tests and “working closely with our customers around the world as they continue to adapt to the evolving COVID-19 situation.”
Boeing has been working on rolling out the 777X, a larger version of the 777 mini-jumbo, in 2021. That’s already a year later than originally scheduled after issues with its General Electric (GE) GE9X engines among others.
Now the plane maker is getting ready to delay the timeline by perhaps a year. However, Boeing wanted to get production “going hard” to put planes in the air by 2022-2023, according to the report.
The 777X will be the first major jet to be certified since the software flaws in two fatal 737 MAX crashes. The 777X - composed of two models, the 777-8 and the larger and more closely watched 777-9 which seats 406 passengers and is due to be delivered first - competes with the Airbus (EADSF) A350-1000, which seats about 360 passengers.
Ahead of Boeing’s earnings release on July 29, Credit Suisse analyst Robert Spingarn, who has a Hold on the stock with a $156 price target (10% downside potential), says he expects Q2 results to be short of current consensus. The analyst forecasts Q2 sales of $12.7 billion (-4.2% vs. Street), down 19.2% Y/Y and -25% Q/Q and EPS loss of $3.39 vs Street of $2.48.
“It remains difficult to articulate a cogent reason to be constructive on the stock. On the MAX alone, we are increasingly unlikely to see recert before Q4, cancellations look set to continue, and the long-term market share equation remains poised to tip permanently in Airbus’s favor given openings on its production line, superiority of its narrow body portfolio, and ongoing investments in cost-saving automation,” Spingarn wrote in a note to investors on July 24. “Meanwhile 777X looks set to enter a market that does not want it.”
In line with Spingarn, the rest of the Street is sidelined on the stock. Seven Holds, 3 Sells, and 7 Buy ratings give Boeing a Hold analyst consensus. Meanwhile the $186.69 average analyst price target implies 7% upside potential over the coming 12 months. Shares are down 46% so far this year. (See Boeing stock analysis on TipRanks).
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