It’s no secret that COVID-19 has transformed the American economy. Manufacturing plants are shutting down, employees who can are working from home, and companies are struggling to stay afloat. Although many of these changes are temporary in such scale, they may be permanent in a smaller scale—i.e., some number of employees who were previously commuting to work will likely permanently switch to working from home after being introduced to this possibility.
One sector that’s especially hurting now and is poised to bear the brunt of these long-term changes is the transportation industry, and specifically airline companies. Many years after COVID-19 has died down, passengers will likely still feel innately uncomfortable with being packed together on a rarely cleaned aircraft. One company that may be especially hurt by this trend is Boeing (BA), a member of the near duopoly controlling aircraft manufacturing (the other member being the European giant Airbus).
There is certainly much reason for concern regarding Boeing. Its manufacturing orders in the private sector are primarily associated with the rate of growth of airlines, since only when these companies are growing will they require more jets. Since the COVID-19 crisis will likely hurt demand for airline tickets for some time, Boeing will be hurt terribly. Beyond this crisis, its 737 MAX jet, the most fuel efficient of its class and its best-selling aircraft, had a poorly designed trajectory measuring system that resulted in two crashes causing 346 deaths.
As a result, Boeing has set aside $100 million in restitution for victims’ families and $4.9 billion to airlines, but, more significantly, it lost a great deal of public trust and goodwill and has been forced to ground its 737 MAX jets until the FAA clears it (which will likely occur by the middle of this year, but could drag on for a great deal longer.
Overall, however, I generally side with the Boeing bulls, since its stock price is down over 75% from its highs, a drop I see as too harsh for such a sturdy company. Boeing is perhaps the single most important strategic company to the United States. Boeing’s Defense, Space, & Security division generates revenues of over $26 billion, mostly with the U.S. government. It also employs more than 120,000 U.S. workers, making it one of the largest employers in the United States, especially in the preciously dwindling manufacturing sector.
As one of the most important defense contractors and employers in the United States, the U.S. government is highly unlikely to let it fail, especially since this would mean yielding a virtually complete monopoly over the aircraft manufacturing industry to the European “upstart” Airbus. And since there’s little alternative to air travel in moving packages or passengers long distances very quickly, although Boeing may face some long-term headwinds, it has a good chance of recovering to previous levels in the next several years.