Aerospace & Defense

Has Boeing's Recovery Finally Begun?

Just two weeks ago, the Boeing Co. (NYSE: BA) 737 Max jet was recertified by the U.S. Federal Aviation Administration (FAA), and less than a week later the European Union’s civil aviation regulator followed suit. On Monday, the FAA certified the first 737 Max for delivery to a customer since March of 2019, when the aircraft was grounded following two fatal crashes that killed 346 people.

Boeing has about 450 737 Max aircraft built since the grounding parked at various locations around the country, and it expects to deliver half of those next year and the remaining planes in 2022. At the same time, the company will gradually ramp up production of the 737 Max to a projected total of 31 per month by the end of 2022.

It’s worth noting that under the FAA’s recertification of the 737 Max, the agency must certify every single plane for delivery. Prior to the grounding, the FAA had off-loaded that work to Boeing.

To help the company finance and sell all those planes, Boeing on Tuesday announced a partnership with private equity firm Castlelake. Under the agreement, Castlelake will provide up to $5 billion in capital for new Boeing aircraft deliveries by means of senior secured financing, mezzanine financing and high loan-to-value finance leases.

Castlelake has acquired more than 650 airplanes and 1,000 aircraft engines since the firm’s inception in 2005. The firm focuses its investments in new aircraft, younger midlife aircraft and vintage planes. The agreement with Boeing marks Castlelake’s expansion into aviation lending and is likely to help keep Boeing’s own financing arm, Boeing Capital, from assuming too much risk.

The final feather in Boeing’s cap (so far this week) comes in a report from Reuters that low-cost carrier Ryanair is close to placing an order for as many as 75 new 737 Max jets. The company already has 135 of the planes listed on Boeing’s order book as undelivered as of October 31, and the possible addition of 75 planes would bring Ryanair’s total number of undelivered 737 Max jets to 210.

While Ryanair and Boeing have been negotiating compensation to the airline for delays caused by the 737 Max grounding, and now that both U.S. and European regulators have recertified the planes, those negotiations finally have some reason to get serious. A 737 Max costs about $125 million at list price (an average of the Max 8 and the larger Max 9). Aircraft makers typically sell their new planes to big buyers at discounts of 40% to 50% of list price. Ryanair is likely holding out for an even larger discount. Whatever the price, it’s an improvement over zero, which is how much money Boeing has made on the 737 Max in more than 20 months.

In the noon hour Wednesday, Boeing shares traded up about 2.5% to $218.36, in a 52-week range of $89.00 to $355.29. The stock’s consensus 12-month price target is $200.55.