China May Finally Recertify the MAX. Boeing Stock Needs the Boost.

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Boeing 737 Max.

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Mike Siegel/The Seattle Times/Businesshala

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The stock really needs a boost. China’s re-certification of the 737 MAX may provide this.

Max was discontinued from March 2019 to November 2020 worldwide after two fatal accidents. The US approved the aircraft for return to service in late 2020. Max jets have been flying again in the US, Europe and elsewhere for almost a year now without incident.

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However, China has been a holdout. Each country conducts its own review, and Beijing has yet to recertify the MAX, although that is about to change.

Last Thursday, China’s Civil Aviation Administration issued an airworthiness directive for the Max, outlining the steps airlines must take in order for the aircraft to receive final re-certification. Instruction includes updating flight manuals and downloading new flight control software, wrote RBC analyst Ken Herbert, “This is a positive step forward on the heels of the airline comment period in China regarding Max and its eventual return to service,” he said.

There is no specific date for the final re-certification, but China’s aviation regulators told reporters on Friday that approval could come by the end of the year.

This means that MAX deliveries in that country could resume in the first quarter of 2022. This is a positive for the stock. China, which accounts for about 25% of global jet demand, accounted for about 22% of the MAXs built before the grounding. Orders placed for China represent about one-third of Boeing’s inventory of undelivered Max planes.

Herbert rated Boeing stock (ticker: BA) outperform with a price target of $275. Max’s crisis and Covid-19 have beaten the stocks. The stock closed above $198 on Friday. Boeing shares hit an all-time high of $440 in early 2019.

baron’s Wrote in mid-August that shares could rise north of $300 if management takes bold action in the wake of the Max and Kovid losses. This has been a tough call. The stock was worth about $235 when our story was published. It has since declined 14%, while the S&P 500 is up 2%.

The persistence of Covid-19 and its variants has outperformed all aerospace-related stocks. Airbus (AIR.France) is down about 13%, and large aerospace suppliers are down about 10%, on average, over the same period.

Covid remains biggest stock overhang, but Boeing hasn’t announced a new mid-size plane baron’s suggested to do. The company is still working through past problems.

After China’s MAX recertification, “there were 787 deliveries on the catalyst front,” wrote the Baird analyst. Peter Arment, Those deliveries have been put on hold due to quality issues discovered over the years. Boeing has about 105 of the 787 jets awaiting delivery.

write to Al Root [email protected]


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