Will Boeing Stock Recover?

It seems like a day barely goes by now without Boeing featuring in the news for some sort of faux-pas or another, whether a minor manufacturing issue or a catastrophic deadly one.

Recent CEO testimony sparked outrage among the public in general and triggered Elon Musk to take a direct shot at him for his lack of technical expertise and focus on financials versus engineering.

The CEO of an aircraft company should know how to design aircraft, not spreadsheets https://t.co/q5lZejPxWb

— Elon Musk (@elonmusk) June 25, 2024

So how did Boeing arrive at this point where, over the past six months, BA share price has fallen by 33.5%.

Why Did Boeing Stock Fall?

The price declines accelerated when Boeing (NYSE:BA) the Justice Department announced that the company did not meet the terms of an agreement made in 2021. 

In its view, Boeing did not follow its responsibilities in a deal from 2021, which protected the company against criminal charges about deadly accidents with its 737 MAX planes in 2018 and 2019, which collectively resulted in the deaths of 346 people.

These catastrophes took place in Indonesia during 2018 and then again within Ethiopia’s borders a year later. Following the second incident, the Department of Justice conducted an inquiry into Boeing’s methods for persuading the Federal Aviation Administration to approve the 737 Max aircraft.

Investigators found evidence that Boeing engaged in fraudulent actions against the United States by misleading FAA officials regarding parts of a crucial flight-control system involved in subsequent accidents.

Boeing and the Justice Department privately discussed a deal, known as a deferred prosecution agreement. In this arrangement, Boeing pointed to two lower-ranking workers for misleading actions and consented to pay $2.5 billion, with the larger portion going to its airline clients.

The government decided that it would dismiss one charge of criminal fraud against Boeing if it did not commit any further violations for three years.

The three-year trial phase was nearing its end when, in January, a door it sealed burst open on a brand new 737 Max during Alaska Airlines flight 1282. The event led to fresh inquiries into the business, with the Justice Department also opening an investigation.

Accident investigators found out that when they took off the panel for some work at a Boeing plant close to Seattle, four bolts were missing which are supposed to hold the door plug in place.

Boeing informed government representatives that it lacked any records concerning the repair work. During a discussion the previous month with relatives of those deceased in the MAX accidents, officials from the Justice Department mentioned Boeing’s absence of details might breach the settlement deal, according to two attorneys attending.

Navigating Legal Troubles

Boeing may now face criminal charges. The Justice Department explained in a letter to U.S. District Judge Reed O’Connor in Fort Worth, Texas, that because Boeing did not fully comply with the conditions of the previous agreement, it can be prosecuted by the United States for any federal crime that they know about.

The administration of President Biden communicated through their letter that they haven’t made a decision about the next steps, but Boeing will get a chance to address its violation of the contract and describe actions taken to remedy matters by June 13. They will inform the court of their plan for moving forward with this matter by July 7.

The Justice Department might try to impose more fines on the aircraft manufacturer or encourage the company to admit guilt, a result that could influence Boeing’s chances of getting contracts from the government and reveal if companies broke other similar deals.

Breaches of agreements that delay prosecution are not common. However, under President Joe Biden, the Justice Department has increased its examination of corporations that repeatedly do wrong and has imposed penalties on companies breaking these agreements.

Strategies for Recovery

Boeing and its airline customers are going through some tough times, and they must work hard together to make sure people trust how safe and dependable Boeing airplanes are. 

Starting from January 5, over 70,000 workers of Boeing joined in Quality Stand Downs at several locations. Boeing got over 30,000 suggestions for betterment from this activity. This year, the company experienced an increase in employee Speak Up submissions by over 500% compared to last year.

From heightened education to access to the right tools, the company appears to be setting a better course. Other initiatives include setting up machinery in factories, telling workers what to do, looking more carefully at how parts are made, following rules scrupulously, managing work that moves around different places, and much more.

Boeing is making use of this challenging time to intentionally slow down the process, secure the supply chain more firmly, strengthen factory activities, and prepare itself for more consistent and higher-quality deliveries that clients expect over a long period.

As these measures started working, Boeing noticed initial indications of cycle times becoming more predictable, stable, and efficient in its 737 factory. Management believes this trend will keep getting better gradually.

Also, Boeing has been open in its dealings with the FAA and has quickly started working on a 90-day action plan for better quality across its manufacturing system. It finished the review set for 30 days and is frequently updating the FAA while finishing up its 90-day strategy.

Additionally, the company recently placed several new executives into important positions within the Commercial Airplanes division. 

Will Boeing Stock Bounce Back?

Ongoing safety concerns and growing bearish sentiment mean Boeing stock is unlikely to bounce back anytime soon.

To add insult to injury, 12 analysts have revised their expectations lower for the stock for the upcoming earnings period. 

Large investors have also fled the stock. Renaissance Technologies, Two Sigma Investments, and Arrowstreet Capital were big companies that sold their entire holdings in the troubled airplane manufacturer Boeing during the first quarter.

Renaissance Technologies has sold a total of 1,057,900 shares in Boeing during the first quarter. The value of these shares was just over $240 million at the end of that time frame and if we look at their worth now it would be around $187 million.

In addition to this, Two Sigma Investments got rid of 108,423 shares, and Arrowstreet Capital parted with 47,571 shares. Looking forward to the near future, the company’s forecasts don’t look so good, which means institutional capital is likely to be shy to build a position, creating a dearth in demand.

For the second quarter of fiscal year 2024, which finishes in June 2024, analysts forecast that the business will announce a loss of $0.66 for each share, and they predict that revenue will go down by 3.9% compared to last year’s same time, reaching $18.99 billion.

So, although the company is making efforts to better its prospects, it might be prudent to avoid Boeing until favorable news comes out that turns the tide.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.