Boeing (BA): Production Progress, Key Approvals & Earnings Options Trade

SPEAKER_1 (0:00)

We're back on Morning Trade Live. Let's go inside out on Boeing. Joining us now to do that is Ben Tsocanos, who's the Aerospace Director at S&P Global Ratings. Ben, good morning. What's the story for Boeing that you're watching right now? I mean, obviously there's been some good news that's offset some of the bad news, but what is key moving forward?

Ben Tsocanos (0:19)

Yeah, good morning. Well, certainly earnings, of course, coming up. I think a couple of that, as you mentioned, some of the good news coming out with the win on the fighter and also on the union contract. So both of those are really significant milestones. We still have some couple of key new model approvals that we're looking for for the Max 10 and significantly the 777X. So I'd say that those are the biggest.

Next milestones that we're looking for to support cash flow improvement next year.

SPEAKER_1 (1:09)

Okay, so obviously we've got this Navy contract. That is important. That helped offset some of the more recent safety concerns that we've learned about as well. What about these numbers, these Q3 deliveries that we've heard of this morning? Does that look positive to you?

Ben Tsocanos (1:26)

Yeah, I think they're making progress. I mean, they're still below that 47 production level that they're trying to get stabilized at, but I think they're on track to deliver what we're expecting for the year. I think they're going to be under-delivering a little bit, under-delivering production a little bit this year while they are building some inventory of the not yet approved or not started to deliver max variance.

SPEAKER_1 (1:56)

Okay.

You said obviously one of the next big catalysts to keep an eye on is going to be the earnings. We do obviously have the quarterly deliveries which gives us some hints about what to expect there, but what are you looking out for when they report here on October the 27th?

Ben Tsocanos (2:14)

Yeah, I think at this point maybe we can start to get a little bit of guidance to what to expect next year or what the company expects for next year. Like I said, the key milestones I think are approvals for the new models, and when they expect to start deliveries for the Dash 7, which has been approved but deliveries haven't started yet, I think partly because of the software issue which you touched on.

SPEAKER_1 (2:44)

Yeah, and what about the fundamentals as well, Ben, because I'm wondering, obviously, as you've pointed out in your notes as well, I know a lot of analysts are looking at that free cash generation on the cusp of turning a corner here next year. What would you like to see?

Ben Tsocanos (2:59)

Well, we're looking for as production starts to ramp up and as deliveries pick up, and as we unlock a lot of that inventory from the models that haven't started to be delivered yet, significantly the 777 So we're looking for cash flow to really start to build up next year.

So of course with Boeing, often we do get surprises, and anything that we don't have unexpected surprises, I guess would be a positive.

SPEAKER_1 (3:38)

All right. Just quickly, I mean, as far as some of the risks associated with this name, I mean, obviously you highlighted a couple of those things, but it certainly has managed to beat out the competition, certainly on the Navy contract. But what about just generally on the commercial aircraft and the orders?

Ben Tsocanos (3:57)

Yeah, they have no shortage of demand. They have a gigantic backlog of orders. And really, the story is to try to build up a production to start building deliveries and meet that demand, even though I think that we've heard from the airlines that there's maybe starting to see a little bit of a softness demand because of high fuel prices. The backlogs are so large and the under supply has gone on for so long that I think that there's not going to be a drop in demand even with softer air travel.

Certainly, that could flow through the aftermarket part, but overall, it's a very strong story from a demand perspective.

SPEAKER_1 (4:47)

Yeah, we'll certainly have to see how the story pans out for these airlines because, as you point out, I think they do not have a customer or demand problem. They've got a big fuel problem. So we heard that from Delta. We'll see what the rest say. Ben, really appreciate it. Thanks so much. Ben Tsocanos there. Aerospace Director, S&P Global Ratings. Appreciate it. Let's trade it now with Tom White, host of Fast Market. I mean, obviously, this is one we watch very closely. It's down today, down 15% year to date. Tom, walk us through an example trade.