Analysts Reaction to Boeing MAX Production Suspension
With uncertain duration and uncertain supply chain treatment, an uncertain impact
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December 17, 2019 - by Scott Hamilton for leehamnews.com
- With uncertain duration and uncertain supply chain treatment, an uncertain impact
Boeing said that no layoffs or furloughs will result from this action at this time, and that "affected employees will continue 737-related work, or be temporarily assigned to other teams in Puget Sound." It is not clear whether Boeing intends to pay suppliers to continue production or if they will be expected to suspend activity as well
Boeing's MAX announcement leaves many questions unanswered but that was probably inevitable, given the difficulty of forecasting how the aircraft will return. Some of these questions include 1) the duration of the halt, 2) the production pace post-halt, 3) the timing of re-certification, 4) the delivery pace after reaching that milestone, and 5) how Boeing will support the supply chain during the halt, with uncertainty on these topics leaving a broad range of outcomes for modeling.
We sense that investors are still looking to a "clean year" in 2022-23 for a sense of how to think about the stock and on this basis, our estimates are little changed today at ~$16bn of FCF, though this is based on several important unknowns. In addition, the path between today and a "clean year" contains risks, such as we saw with today's production halt, which had seemed far less likely several weeks ago. The focus of the halt appears to be inventory management and while the duration is TBD, the release states that it is the least bad option for preserving supply chain health, suggesting to us that it should be fairly short term—perhaps a few months. We cut our PT to $370.
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