Perhaps a jet manufacturer offers a better play on public health and economic recovery than a cinema chain? Consider Boeing versus AMC Entertainment. AMC’s stock, a recent chatroom darling, has soared skyward — five times — since Friday. The teetering cinema group managed to source new financing this week. In comparison, Boeing looks relatively grounded.
Boeing’s stock fell 2 per cent after it reported fourth-quarter earnings on Wednesday. A net loss of more than $23 per share for 2020 combined with an operating cash burn of $18bn. However, it would be misleading to attribute its ills solely to the collapse of global travel.
Boeing’s operational problems both on the 737 Max and other models have exacerbated its financial predicament. The company remains confident that a previously steady expansion in commercial aviation will eventually resume. For now, Boeing aims to preserve cash, hoping that in one year’s time it can approach break-even.
Once, Boeing could easily predict its cash flow. Heavy capital expenditures for a few years would eventually morph into jets that the company could go on selling for decades. Markets then rewarded Boeing, and its executives, handsomely for all the dividends and buybacks which squeezed its balance sheet. That assembly line of cash worked well as long as planes were being produced.
Boeing had problems, firstly getting its prized 787 Dreamliner off the ground. Then came the crashes and grounding of the 737 Max (which only recently has been recertified around the world). On Wednesday, the company took a $6.5bn charge on the 777X long-haul wide-body jet announcing deliveries would be delayed to 2023.
Even with all those hiccups, Boeing has easily tapped the capital markets. It has, remarkably, retained an investment grade credit rating. Its gross debt balance has ballooned to $62bn from a year before. The beauty of leverage means that even small improvements in earnings optimism can send a stock skyward. Boeing shares have doubled since the March 2020 lows even though the company should burn even more cash over the course of 2021.
Boeing is still down over a half compared with its share price high achieved two years ago. The company has contemplated selling equity to help it cut debt. While Boeing’s shares have not had the volatility of companies recently dominating social media, the aircraft maker remains an interesting wager on a world returning to normal.
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