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Coronavirus Crisis Hits Jet Makers: Boeing, Airbus In Focus

By Zacks Investment ResearchStock MarketsMar 09, 2020 10:28PM ET
www.investing.com/analysis/coronavirus-crisis-hits-jet-makers-boeing-airbus-in-focus-200514786
Coronavirus Crisis Hits Jet Makers: Boeing, Airbus In Focus
By Zacks Investment Research   |  Mar 09, 2020 10:28PM ET
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Plummeting oil prices and ongoing coronavirus fears sparked recession worries among panic-stricken investors, resulting in a large amount of sell-offs on Mar 9, thereby causing the Wall Street to topple. Aircraft manufacturers - both commercial and defense - also felt the wrath of the turmoil.

Premier jet makers Boeing (NYSE:BA) and Airbus (OTC:EADSY) suffered the most. While shares of Boeing plunged 13.4% on Monday, the European aircraft manufacturer tumbled almost 10%.

Impact of Coronavirus Outbreak on Jet makers

The rapid spread of the epidemic outside China over the past few weeks has worsened the situation for global jet makers, since airlines have lowered aircraft orders for the time being. This has affected the order growth trend for the premier jet makers in the recent months and in turn forced a handful of them to cut down or even halt their production rate at some parts of their operation.

While the production halt is likely to weigh on future revenues, the plane makers are expected to incur expenses associated with the storage of the finished products whose delivery.

Due to drastic decline in passenger bookings following the spread of the virus, numerous flights have been cancelled across the globe. Leading airlines have been forced to cut down their capacity. Moreover, reduced flights indicate lower revenues from the services that these jet makers offer to the airlines.

Such a disruption in the aviation industry is likely to drag down earnings of aircraft manufacturers in the first quarter of 2020. A continuation of the same can be expected in the coming quarters as well since the virus continues to spread to different parts of the world.

Boeing & Airbus

Boeing was the biggest drag on the Dow Jones Industrial Average Index on Mar 9. While the coronavirus fear has been a major growth inhibitor, the Federal Aviation Administration's (FAA) rejection of the plane maker’s proposal regarding the wiring systems on its grounded 737 MAX aircraft also affected the stock.

Notably, this U.S. jet maker has already been struggling with the 737 Max issue and investors hoped that this plane’s return to service will revive Boeing’s commercial business. However, following the latest FAA decision, this seems farfetched. Moreover, the ongoing demand concerns due to the coronavirus outbreak have cast a shadow over order growth and timely delivery of other jet models of this aircraft manufacturer. Evidently, in January 2020, the company failed to generate any sales on account of zero orders.

Airbus, another prominent commercial jet maker, logged no orders in February, the first time in 13 months, as airlines held back on new commitments following the coronavirus crisis. Meanwhile, the European jet maker shut down a factory in China that accounts for almost 10% of the production of its most popular jet. Per a report by Reuters, Airbus trimmed A330 output in January and there is no indication of a reversal until 2021.

Another Stock in Focus

The coronavirus crisis hit military jet makers as well, especially Lockheed Martin (NYSE:LMT) . Notably, Lockheed Martin and Mitsubishi Heavy Industries MHVYF recently planned to shut down production at the F-35’s Final Assembly and Check-Out (FACO) facility in Nagoya, Japan for the week of 9-13 March due to fears of coronavirus contagion. While Lockheed has not yet stopped production at its Cameri facility situated in Italy, considering the rapid rate at which the disease is spreading in the country, a production halt in the coming days will not come as a surprise. Anticipating no near-term mitigation in the spread of this deadly virus, probable production halts may hamper Lockheed’s 2020 delivery targets and in turn weigh on its profitability. The company’s shares declined 8% on Mar 9.

Considering the aforementioned discussions and the rapid rate at which the coronavirus is spreading, investors will be keeping a close watch on these aircraft manufacturers.

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Coronavirus Crisis Hits Jet Makers: Boeing, Airbus In Focus
 

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Coronavirus Crisis Hits Jet Makers: Boeing, Airbus In Focus

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