Boeing's (BA) Path to Redemption and Its Investment Potential

What’s going on with Boeing?

On June 1, a highly-anticipated The Boeing Company’s (BA) Starliner spacecraft was scheduled to launch from Cape Canaveral, Florida, on its maiden voyage to the International Space Station (ISS) with a human crew. However, the automated systems halted the countdown just four minutes before liftoff.

The astronauts were safely extracted from the capsule, and officials are now investigating a computer issue that disrupted the rocket’s final prelaunch sequence. This problem caused Starliner to miss its narrow launch window, which was timed precisely to reach the ISS.

"It's disappointing," NASA commercial crew program manager Steve Stich said in a press conference after the launch scrub. "Everybody's a little disappointed but you kind of roll your sleeves up and get right back to work."

Starliner’s journey has been anything but smooth. Originally slated to launch three weeks ago, the mission was aborted due to a valve malfunction. Further complications arose when engineers detected a helium leak and discovered a ‘design vulnerability’ in the propulsion system, causing additional delays. A backup launch on Sunday was also scrapped, with NASA citing a ground support equipment issue.

Boeing Starliner Launch Postponed Again?

Yet, despite the disappointment, Boring is not giving up. The company might attempt another launch on June 05. However, the last-minute abort adds to a long list of setbacks that have plagued the Starliner program for years. Additionally, each Boeing misstep increases America’s dependence on its competitor, SpaceX, for transporting astronauts to space.

For Boeing, proving that Starliner can operate reliably is not just about technical achievement; it’s about restoring its tarnished reputation and demonstrating that it can be a dependable partner for NASA.

Over the weekend, engineers conducted a thorough evaluation of the computers, power supply, and network communications systems onboard the Starliner spacecraft. They identified the issue as a faulty ground power supply within one of the computers, which affected the operation of crucial countdown events.

The affected computer was replaced with a spare, and no physical damage was found. Meanwhile, mission specialists are analyzing the faulty power unit to determine the root cause of the issue. According to the ULA team, all other computers and their components were assessed and found to be functioning normally. Following a review by the Starliner mission management team, the spacecraft has been given the green light (‘go’) for launch on Wednesday.

This launch attempt comes as Boeing is scrutinized for other high-profile incidents, including a mid-flight panel detachment and two fatal crashes years ago. While Boeing’s air and space divisions are separate, these issues impact the company’s reputation.

The company is contracted to build six regular flights for NASA to ensure multiple astronaut transport options. But the Starliner’s crew debut has been delayed for years. So far, Boeing has lost $1.5 billion in costs and around $5 billion in NASA development funds due to craft setbacks.

The crew flight test scheduled last weekend represents the final major step before it receives NASA certification to begin regular missions. With NASA’s increased oversight following past failures, Boeing must convince the government and the public of its reliability. If successful, this launch will mark the beginning of a critical demonstration for Boeing.

Bottom Line

BA's ability to fulfill its promises is under intense scrutiny after a series of setbacks so far this year that has shaken confidence in its operations. Moreover, with increasing order cancellations and decreasing cash reserves (ranging between $4 billion and $4.5 billion for the first quarter), the situation is critical for the struggling aircraft manufacturer.

Boeing reported a 36% year-over-year decline in commercial plane deliveries for the first quarter of fiscal 2024. This caused a dent in the company’s cash flow from operations dropping to negative $3.36 billion and non-GAAP free cash flow falling to negative $3.9 billion, broadening significantly from last year’s losses. The company posted a 7.5% year-over-year decline in its total revenue to $16.57 billion. Its adjusted core operating loss was $388 million and $1.13 per share, respectively.

In this context, the question of Boeing's investment appeal looms large on Wall Street. Analysts expect BA’s revenue for the second quarter ending June 30, 2024, to decrease 6.5% year-over-year to $18.48 billion. The company is projected to post a loss per share of $0.85 for the current quarter.

Although the specifics of the plan are still unknown, early signs suggest a focused effort to strengthen operational efficiency and quality control measures. For instance, BA’s plan to acquire Spirit AeroSystems to address quality control and operational efficiency challenges reflects its commitment to streamlining its supply chain, strengthening production capabilities, and exerting greater control over supplier policies and practices.

The upcoming term will be crucial for the company's long-term survival. Moreover, when it comes to the space industry, we certainly see stiff competition for Boeing. For instance, SpaceX has regularly launched astronauts and rockets in partnership with NASA since 2020.

Over the past five days, BA’s stock has gone up by nearly 6%. But, in terms of year-to-date, Boeing has not been able to take off, as its shares have plunged more than 29%.

However, analysts maintain a Moderate Buy consensus rating on BA stock, reflecting a cautiously optimistic outlook tempered by lingering concerns. With a target price of $216.96 per share (with a 22.16% upside), they are cautiously hopeful about BA's potential for recovery and resurgence in the coming months.

Overall, investor confidence remains mixed, with uncertainties surrounding the full extent of Boeing's financial impact and its ramifications for the aviation industry as a whole.