Continue Avoiding After It Lost $2.4 Billion
A couple weeks ago I showed you 3 Reasons To Avoid Boeing. To read the full article click the link in the sentence prior.
Here’s a brief recap though for context into today’s article.
- It’s Got An Enormous Amount of Debt
- It’s Not Producing Enough Profits and Cash Flow
- Uncertainty Related To The Coronavirus
This all circles back to the beginning and the entire hospitality industry getting hammered by the coronavirus.
Air travel, hotels, and restaurants are still getting hammered.
This is a large problem for all airline and airline related companies… Including airplane manufacturers like Boeing.
Both due to fewer people wanting to get on planes now. And due to whatever limitations, the government puts on them to continue operating during this pandemic.
As I mentioned in the previous article – 3 Reasons To Avoid American Airlines…
Airline traffic is down 96% in April 2020 compared to April 2019 as of the most recently available airline traffic data in the US.
An estimated half of all airplanes are parked at airports and not flying.
And 1/3rd of all seats on most domestic flights remain unfilled due to social distancing restrictions.
The airline business at full capacity has razor thin margins. So thin that over the entire history of airlines the industry combined is unprofitable.
We’ll know more for sure in the coming months as airlines release more up to date financial info. But anything below full capacity means lower revenues, profits, and cash flows for this entire industry.
These things are all affecting Boeing as well.
Boeing was in trouble before this pandemic due to the two 737 Max Air Crashes a few years ago.
Combining this with the still ongoing and exploding coronavirus crisis leading to far lower air travel and Boeing’s enormous debt and negative profitability and cash flow and its in major trouble going forward.
I recommend you stay far away from this entire industry for the time being for the reasons above. But especially stay away from Boeing.
Well a few months passed from April 2020 and Boeing released its 2nd quarter 2020 results.
They weren’t good… And that’s putting it mildly.
Here are some of the lowlights of its 2nd quarter 2020 report…
Revenue dropped 25% from $15.8 billion in the 2nd quarter of 2019 to $11.8 billion in the 2nd quarter of 2020.
It lost $2.4 billion in net income in the quarter.
It announced a 40% reduction future reduction in the manufacturing of 787 planes. From 10 to 6.
It announced a 40% cut to 777/777X planes – from 5 to 2.
It announced that beginning at the end of 2019 its orders for new planes are falling for the first time on record.
It stopped its share repurchasing program.
Boeing estimates that it will take as many as 3 years for air passenger travel to reach pre coronavirus levels.
It announced that its further cutting its employees.
And that its debt levels exploded from $38.9 billion at the end of the 1st quarter of 2020 to $$61.4 billion at the end of the 2nd quarter.
Or that debt levels increased by 57.8% in only 3 months.
I could keep going because the report was almost nothing but bad news for the company, but I’ll stop here.
Boeing was in trouble for years due to the two 737 MAX air crashes and then suspension of flights using those planes.
And then more recently due to extremely reduced air travel related to the coronavirus.
The company’s been in trouble for a while.
But just how bad is this?
If Boeing is correct and air travel doesn’t return to pre coronavirus levels for 3 years, it’s not just in trouble. Its in danger of going bankrupt due to its massive debt load and lower revenue, profits, and cash flows.
Its debt levels above $60 billion make it one of the top 15 most indebted companies in the world.
In the entire time from 2010 to 2018 – the last year Boeing earned positive free cash flow – the company earned a total of $62.3 billion in free cash flow in 9 years… That is almost the exact amount of debt the company now must pay off.
This debt load is enormous. And likely near impossible to pay off over time.
In other words, Boeing was in rough shape in early 2020… Now its in extreme danger of going bankrupt. Especially if air travel doesn’t pick up any time soon.
Continue avoiding this entire sector.
But especially avoid Boeing for the reasons mentioned above here and in the previous article on Boeing linked at the top of this page.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.