Aerospace behemoth Boeing (BA -5.07%) stock took a 2.5% strike on Monday right after Bloomberg documented that China Southern Airways (ZNH .00%) is delaying acceptance of deliveries of a lot more than 100 Boeing 737 MAX jetliners to 2025 or afterwards.
That is the undesirable news. The superior news is that Boeing inventory is turning about and regaining altitude this early morning, up 3.5% as of 11:40 a.m. ET on a take note from JPMorgan that argues the news is “not as stark” as it initially appeared to be.
Contradicting Bloomberg’s browse on the problem, JP observes that China Southern not indicating it plans to acknowledge deliveries through 2024 is not the exact same point as China Southern stating it will not accept the planes, studies TheFly.com nowadays. In other terms, there’s even now a opportunity the airline will get the planes (and pay back for the planes), or at minimum some of them.
In small: The expected strike to Boeing’s revenues and income stream might not be as major as it initial appeared.
So how should investors truly be deciphering this information?
Initially and foremost, I would choose China Southern’s assertion at facial area benefit, and believe that it really is now more very likely than not that the airline will not purchase any Boeing planes prior to 2025. That should really be your base assumption, and it really is lousy short-term information for Boeing. (China Southern is, soon after all, Boeing’s greatest purchaser in China). Nonetheless, it is not awful news for Boeing in the long time period, for the reason that of the purpose China Southern is generating this final decision.
It’s not producing this final decision for the reason that China does not believe the 737 MAX is safe to fly. (Chinese regulators essentially cleared the 737 MAX as safe to fly in China late final 12 months). Relatively, as Reuters clarifies nowadays, China Southern is backing away from purchasing the Boeing planes for the reason that of “slack demand” — prevalent coronavirus containment measures that have crushed demand from customers for air journey in China, to the extent that passenger targeted visitors by way of Shanghai International Airport fell 98.9% calendar year over yr in April!
That is barely a challenge Boeing can be blamed for. It is really also a challenge that will take care of by itself just as quickly as China relents on its lockdowns, and permits men and women to get out and about and flying again.
At the time air journey resumes in China, I suspect Boeing plane product sales to China will resume as perfectly.