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Problems With the 737 MAX or Not, Here's Why Boeing Stock Is a Buy

Motley Fool - Mon Feb 5, 10:19AM CST

It's been a tough past few weeks for Boeing(NYSE: BA) and its shareholders. Concerns about the safety of its ballyhooed 737 MAX jets were rekindled early last month after loose bolts were discovered by two different airlines' maintenance workers.

A mid-flight panel blowout on an Alaska Airlines 737 MAX 9 jet just a few days later only exacerbated these worries. The fourth quarter's earnings and revenue both ended up rolling in better than expected, and the company even narrowed its loss. But the stock's still losing ground.

Interested investors may still want to use this weakness as a buying opportunity, though. There's one number saying the company's going to be fine despite the seemingly never-ending problems with its 737 MAX series of commercial jets.

The 737 MAX drama is getting old

Don't misread the message. This is a serious problem for Boeing. Lots of airline executives are growing weary of their 737 MAX jets being grounded over safety concerns.

American Airlines CEO Robert Isom is one of them. Commenting on the company's recent missteps, he said in no uncertain terms that "Boeing needs to get their act together," adding "The issues that they've been dealing with over the recent period of time, but also going back a number of years now, is unacceptable."

That's the kind of language one would expect to hear shortly before an airline starts taking a closer look at planes made by rivals like Airbus.

It's not just American Airlines' top brass floating such language, either. United Airlines CFO Mike Leskinen commented: "The reality is that with the MAX grounding, this is the kind of straw that broke the camel's back with believing that the MAX 10 will deliver on the schedule we had hoped for. And so, we're working through an alternate plan."

Boeing's CEO Dave Calhoun isn't unaware of what's happening. He conceded on Wednesday's earnings call that "we caused this," and went on to say the company now has "much to prove."

The funny thing is...

Boeing's backlog is big, and getting bigger

The aircraft manufacturer's reputation may have been repeatedly dented since late-2018 -- when design concerns for its 737 MAX jets first started surfacing. The funny thing is, current and future demand for Boeing's jets has never been stronger.

The graphic below tells the tale. As of the end of last year, Boeing's backlog of unfilled orders stands at just over $520 billion. That's not just a multiyear high. That number's above the 2018 figure when airlines still viewed the 737 MAX as a game-changing plane that could usher in a new era of air travel.

Boeing's backlog of unfilled orders for new aircraft is accelerating to multi-year highs.

Data source: Boeing. Chart by author.

Yes, that's a backlog based on data gathered before the latest batch of potential design flaws with the 737 MAX came to light. But this particular series of aircraft has been persistently problematic since it debuted in 2018. Orders have been growing anyway. Indeed, orders have been accelerating of late perhaps not so much because airlines are in love with Boeing's planes, but because airlines desperately need any new aircraft they can buy.

Numbers from Boeing put things in perspective. The aircraft manufacturer reports the world will need 42,600 new commercial jets between now and 2042. That's way more than the (roughly) 27,000 commercial aircraft that air-travel industry research firm Oliver Wyman says are in airlines' fleets right now, most of which will be retired within the next 20 years. More affordable fares and expanded or newly established airports are expected to be key drivers of this growth.

But the 737 MAX's problems? They'll all be fixed -- eventually. It may not entirely matter when or even if they are, however. Orders are still flowing in for the 737 MAX. The company received orders for 987 of this particular plane last year alone, with a total of 4,799 orders of the 737 MAX slated for delivery down the road. This of course keeps the plane's place as Boeing's biggest breadwinner.

Just steer into this enormous tailwind

While the vast majority of Boeing's backlog is categorized as "contractual," know that these still aren't ironclad, etched-in-stone commitments. These orders can be cancelled.

Simply cancelling orders for a particular passenger jet, however, is no small matter.

See, airlines plan their routes, fares, and capacities often years in advance to meet a very specific need. They also count on a particular level of fuel efficiency with each and every aircraft they purchase. Problems or not, the 737 MAX series burns up to 20% less fuel than comparable jets do. That's a big deal made even bigger by the fact that fuel prices may be lingering at their currently high prices for the indefinite future. Simply switching to a different plane is no easy option.

More important to interested investors, most of the business that's already penciled in for Boeing will very likely come to fruition anyway. A big chunk of it is still apt to materialize in the very near future, in fact. The analyst community is calling for sales growth of more than 15% this year, with another 11% sales growth in the cards for next year. Better yet, the analyst community is still calling for a swing back to a profit this year. That could prove bullishly catalytic in and of itself.

In other words, don't sweat the recent 737 MAX drama or Boeing stock's recent weakness. There's a much bigger tailwind blowing in Boeing's favor.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group. The Motley Fool has a disclosure policy.

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