Boeing Co.’s 737 Max aircraft was given the green light to return to the skies by the US Federal Aviation Administration (FAA), sending its shares up 3%.
Boeing (BA) said that the FAA lifted the grounding order that halted commercial operations of its 737-8s and 737-9s. The planes have been grounded since March 2019 after two fatal crashes that killed 346 people. The ailing planemaker said that the FAA move will allow airlines that are under its jurisdiction, including those in the US, to take the steps necessary to resume service and for Boeing to begin making deliveries.
“We will never forget the lives lost in the two tragic accidents that led to the decision to suspend operations,” said Boeing CEO David Calhoun. “These events and the lessons we have learned as a result have reshaped our company and further focused our attention on our core values of safety, quality and integrity.”
As part of the terms for the aircraft recertification, the FAA has issued an airworthiness directive, which lists the requirements that must be met before US carriers can resume service, including installing software enhancements, completing wire separation modifications, and conducting pilot training that will ensure the airplanes are ready for service.
Shares of BA have tanked more than 36% year-to-date as the coronavirus travel restrictions have resulted in a deep cut in the number of commercial jets and services Boeing customers need over the next few years. As such, global airlines suffering billions of dollars in losses have been seeking to cancel or delay some of the orders they have with Boeing, including the grounded 737 Max. The stock jumped 32% over the past month as investors anticipated the recertification of the 737 Max.
In reaction to the lifting of the ban, Baird analyst Peter Arment upgraded the stock to Buy from Hold and ramped up the price target to $306 (41% upside potential) from $165.
Meanwhile, Citigroup analyst Jonathan Raviv raised his price target to $200 from $175 but stuck to a Hold rating.
Raviv noted that the progress made on the Max aircraft and the recent positive developments made on a potential COVID-19 vaccine have already pushed the stock significantly higher. (See Boeing stock analysis)
“The challenge now is maintaining upside momentum with Boeing now appearing to fairly reflect multi-year cash flow opportunities,” the analyst summed up.
The rest of the Street has a cautiously optimistic Moderate Buy analyst consensus on the stock. That’s with an average analyst price target of $192.28, indicating almost 12% downside potential over the coming 12 months.
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