Boeing Turnaround Will Require ‘Hurculean’ Effort—Here’s Why Analysts Are Optimistic

Aside from Intel (INTC), no company in the Dow Jones Industrial Average has had a more difficult year than Boeing (BA).

The jet maker, which on Wednesday reported an enormous third-quarter loss and lost a vote to end an expensive monthlong machinist strike, is burning through cash, pushing back the launch of a new model, and has had production of one of its best-selling planes capped for the foreseeable future. 

Yet most analysts believe the company can turn things around and revive its ailing stock.

Boeing’s Tough 2024

Boeing stock has lost 40% of its value this year, but the tough times started in 2019 when two fatal 737 MAX crashes occurred within months of each other. Those incidents prompted a global grounding of the 737 MAX and cast a long shadow over Boeing’s stock. At the start of 2024, Boeing was still trading more than 40% below its March 2019 all-time high of more than $440. 

Things got worse in January this year when a 737 MAX 9 jet lost part of its fuselage mid-flight. The incident and ensuing investigations revived concerns about the integrity of Boeing’s manufacturing. Regulators called for another grounding and forced the company to curtail production. 

Boeing has been burning through cash ever since. The company on Wednesday reported a third-quarter loss of more than $6 billion, or $10.44 a share. 

The company and its CEO Kelly Ortberg, who stepped into the role in August, are hoping to ride out the cash crunch by cutting costs and raising new capital. Boeing is reportedly preparing to lay off about 10% of its workforce. Last week, the company filed to potentially raise up to $25 billion over the next three years through the issuance of new debt and equity. 

Ending Strike a Key Hurdle for Boeing

Boeing’s troubles were compounded when more than 30,000 of its members of the International Association of Machinists (IAM) went on strike on Sept. 13. Analysts estimate the work stoppage has cost Boeing about $100 million a day.

Boeing saw glimmers of hope earlier this week after it and IAM negotiators reached a tentative agreement over the weekend. The proposal included a 35% pay raise over the life of the four-year contract, increased corporate contributions to employees’ 401 (k) accounts, and a $7,000 ratification bonus.

Workers, who had demanded a 40% wage increase and a reinstatement of Boeing’s defined benefit pension plan, rejected that proposal on Wednesday, forcing the company and union back to the negotiating table.

Ortberg said Wednesday during a call with investors that ending the strike is a critical hurdle for the company to overcome. “We have some really big rocks that we need to get behind us to move the company forward. The first and foremost on everybody’s mind today, is ending the IAM strike.”

As part of his efforts to “stabilize the company,” Ortberg said he is also focused on implementing a safety and quality plan and on managing the balance sheet so that Boeing can retain a strong credit rating.

Why Boeing’s Long-Term Outlook Is Stable

Bank of America analysts in a note earlier this month compared the company’s challenges to the 12 Labors of Hercules. Like Hercules, they say, it could take Boeing a decade to put all its problems behind it, but they see the seeds of Boeing’s turnaround in its efforts to raise cash and slash costs.

Other firms agree. “The debt reduction effort would materially improve the balance sheet and would be well-received by the institutional investor community and likely a clearing event for the BA stock,” wrote Baird analysts in a recent note.

Two-thirds of the brokers with ratings on Boeing stock tracked by Visible Alpha rated it a “buy,” and the remaining third gave it a neutral “hold” rating. None recommend selling the stock. 

Boeing is one of only two widebody passenger aircraft makers headquartered in Europe or the Americas, the other being Airbus. That insulates it somewhat from the effects of crises that in more upstart-friendly industries would be ruinous.

Boeing’s being “the beneficiary of a duopoly in a long-cycle industry” is a key reason BofA analysts have maintained their neutral rating on the company’s stock despite the decade of struggle they see before it.

Update—Oct. 24, 2024: This story has been updated to reflect the outcome of Wednesday’s IAM vote.