Axios Markets: Boeing's one-two punch

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Axios Markets

By Courtenay Brown ·Sep 18, 2020

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1 big thing: Boeing's one-two punch

Illustration of an airplane in the air, being held back by a string that a hand is reaching out to cut with a pair of scissors.

Illustration: Aïda Amer/Axios

The grounding of Boeing's 737 MAX was the worst crisis in the plane-maker's century-long history. At least until the global pandemic hit.

Why it matters: Wall Street expects it will be cleared to fly again before year-end. Orders for what was once the company's biggest moneymaker were expected to rebound after the ungrounding.

But now the unprecedented slump in travel will dash airlines' appetite for the MAX and any other new planes, analysts say — putting more pressure on the hard-hit company.

Driving the news: The two 737 MAX crashes in Indonesia and Ethiopia that killed 346 people — and led to its worldwide grounding in March of last year — were front and center this week.

Congress released a 238-page report outlining the "horrific culmination" of events that caused the crashes — laying blame on Boeing and its key regulator, the FAA.
The report isn't expected to delay the plane's return to service, as Fitch Ratings wrote in a report out this week.
Boeing has conducted test flights in recent months to demonstrate the beleaguered jet is safe to fly. The FAA's OK that the plane can return to the skies would likely prompt other countries to follow suit.

State of play: The company has over 450 737 MAX jets in the hopper to be delivered, with a total of 4,117 planes ordered by airlines as of late last month, according to Fitch.

But order cancellations are piling up. The pandemic has introduced a new reality — scrapped orders have consistently outpaced new orders.
While Boeing is expecting some windfall when they're cleared to restart deliveries, as customers pay a healthy chunk when they place the order, the majority of payment comes upon delivery.
And even if customers don't outright cancel prior 737 MAX orders, airlines will "negotiate really hard to defer those deliveries" — pushing off payment to Boeing, says Cai von Rumohr, a Cowen analyst who's followed the industry for 50 years.

The big picture: Airlines are facing such a severe drop-off in travel demand that previous needs for additional planes have disappeared. Even their current inventory isn't fully utilized.

Air New Zealand said this week it would store its entire Boeing 777 fleet until September of next year because of the pandemic. Delta has announced a similar measure.
That's bad news for Boeing, "which makes a long list of spare and replacement parts and components and sells them to airlines to keep the big airplanes in the air," as the Puget Sound Business Journal reports.

Another problem looming: Some deliveries of the 787 Dreamliner — its other popular plane — have slowed after the company disclosed manufacturing issues and was forced to conduct inspections, the New York Times reported earlier this month.

Even with those troubles aside, demand for that plane is expected to wane.
"787 customers don't need to have more 787 planes. International travel is still down by 90%," von Rumohr tells Axios.

The bottom line: When the 737 MAX was grounded, there were questions about whether customers would ever feel safe flying on the plane again. The question has morphed into: How long will it be before customers fly again, period.

Boeing will weather the crisis. It withdrew its plea for federal funds, but loaded up on debt and raised billions in the public market after the Federal Reserve stepped in to shore up credit markets early in the crisis.

Bonus: Where the duopoly stands

Data: FactSet; Chart: Axios Visuals

The pandemic put Boeing and its European competitor Airbus on nearly the same playing field, at least in the eyes of investors.

Between the lines: Boeing and Airbus have a duopoly on the plane manufacturing market.

In the midst of Boeing's 737 MAX crisis, Airbus delivered more than Boeing and became the world's top aircraft deliverer for the first time in years.

Yes, but: It was COVID-19 — not that victory — that brought the companies' market caps to the narrowest gap on record earlier this year.

Since then, Boeing has rebounded to widen its lead on Airbus.

2. Catch up quick

Scoop, via my colleague Ina Fried: How the Oracle-TikTok deal would work.(Axios)

The Fed said it would decide whether or not banks can resume dividend payouts by the end of this month. (Reuters)

President Trump farmers would receive $13 billion in new aid, but didn't give details about how the assistance would be distributed. (Bloomberg)

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3. Unemployment drop-off reverses course

Data: Department of Labor; Chart: Naema Ahmed/Axios

Americans were starting to fall off the rolls of unemployment. But Thursday's claims report shows the drop-off hasn't just stalled out — the trend continues to reverse course.

Why it matters: Skepticism about the underlying data remains. But economists are still worried about the high level of Americans relying on some form of unemployment benefits, which is once again rising six months after the pandemic hit, even as the economy has reopened.

By the numbers: Roughly 14.5 million workers were collecting benefits under the Pandemic Unemployment Assistance, which provides benefits to gig workers, the self-employed and others with limited work history, as of the week ending in Aug. 29.

That's a drop-off from the prior week's figure, but is still likely overstated.
A Labor Department spokesperson told WSJ that it's monitoring the PUA program and working with states where some of the numbers appear to be inflated.

Between the lines: A separate program designed to be tapped once regular unemployment benefits have been exhausted hit its highest level since it was established: 1.5 million people are now receiving benefits through that program.

What they're saying: The rise in people in the extended unemployment benefits program "means ranks of the 'permanently unemployed' continue to increase," Robert Frick, an economist at the Navy Federal Credit Union, said in a statement.

That — plus the uptick in overall Americans receiving some form of unemployment — "add up to a situation where quick advances in driving down unemployment are stalling, and we can now expect tougher going, especially without more stimulus and a faster decline in COVID-19 cases."

What to watch: New state-level unemployment data is out later this morning. It's the most comprehensive look at how states' labor markets fared in August.

1 stat to go: Here's how quickly the pandemic shifted the ground for states across the country. 18 states both saw their lowest level of unemployment ever and their highest level of unemployment ever this year. (h/t AEI economist Ben Ippolito)

4. Poll: America's view of the economy edges higher

Axios' Maria Arias writes: Americans' views on current economic conditions improved this past month, though confidence in the U.S. economy remains well below its early 2020 levels, according to a new Gallup survey.

Why it matters: Even as sentiments surrounding the U.S. economy edge higher, overall satisfaction with the state of the union is holding close to historic lows.

By the numbers: Gallup's Economic Confidence Index hit -10 this month, up from -16 in August. The indicator hit a pandemic bottom of -33 in April, in the midst of countrywide shutdowns.

40% say of those surveyed by Gallup say the economy is "getting better" and 56% say it is "getting worse."
Last month, 32% of survey respondents said the economy was improving, while 61% said it was declining.

The big picture: Economic confidence is not as low as it was during the Bush administration of 1992, when it was -37, but it is less than it had been for the last three successful incumbents.

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Quote: "The story of life is quicker than the wink of an eye."