Boeing (BA) is scheduled to report results of its fiscal third quarter before the market opens on Wednesday, October 23, with a conference call scheduled for 10:30 am ET. What to watch for:
1. GUIDANCE: When Boeing reported its second quarter results on July 24, it announced that its previously-issued fiscal 2019 guidance did not reflect 737 MAX impacts. The company added that new guidance would be issued at a future date. While Boeing has not yet announced updated guidance, the company released this statement: "The previously issued 2019 financial guidance does not reflect 737 MAX impacts. Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date. Boeing is working very closely with the FAA on the process they have laid out to certify the 737 MAX software update and safely return the MAX to service. Disciplined development and testing is underway and we will submit the final software package to the FAA once we have satisfied all of their certification requirements. Regulatory authorities will determine the process for certifying the MAX software and training updates as well as the timing for lifting the grounding order."
2. 737 MAX RETURN TO SERVICE: While at the Jefferies Global Industrials Conference on August 7, CEO Dennis Muilenburg said he still saw the 737 MAX returning to service in Q4. On August 30, the Federal Aviation Administration panel reviewing Boeing's 737 Max certification said it will be "taking additional time to finish documenting its work."
Boeing CEO Dennis Muilenburg said, on September 30, "Safety is at the core of who we are at Boeing, and the recent 737 MAX accidents will always weigh heavily on us. They have reminded us again of the importance of our work and have only intensified our commitment to continuously improve the safety of our products and services. My team and I embrace our board's recommendations and are taking immediate steps to implement them across the company in partnership with our people, while continuing and expanding our ongoing efforts to strengthen safety across Boeing and the broader aerospace industry."
This morning, Boeing announced that it has "made significant progress over the past several months in support of safely returning the 737 MAX to service as the company continues to work with the FAA and other global regulators on the process laid out for certifying the 737 MAX software and related training updates." As part of that update, Boeing said: "Some 445 participants from more than 140 customers and regulators around the globe, including the FAA, have participated in simulator sessions to experience the proposed MCAS software update. Just last week the company successfully conducted a dry-run of a certification flight test."
3. CEO/CHAIRMAN ROLES SEPARATED: On October 11, Boeing announced that its board had separated the roles of chairman and CEO. Dennis Muilenburg continued as CEO, president and a director. The board elected David Calhoun, current independent lead director, to serve as non-executive chairman. The board said splitting the chairman and CEO roles will enable Muilenburg to focus full time on running the company as it works to return the 737 MAX safely to service, ensure full support to Boeing's customers around the world, and implement changes to sharpen Boeing's focus on product and services safety. This decision is the latest of several actions by the board and Boeing senior leadership to strengthen the company's governance and safety management processes. Calhoun said, "The board has full confidence in Dennis as CEO and believes this division of labor will enable maximum focus on running the business with the board playing an active oversight role. The board also plans in the near term to name a new director with deep safety experience and expertise to serve on the board and its newly established Aerospace Safety Committee."
4. TEXTGATE: On October 18, reports surfaced that Boeing handed over instant messages from 2016 between two employees that indicate a pilot employed by the company may have misled the Federal Aviation Administration about a key safety system on the grounded 737 MAX. According to The New York Times, Mark Forkner, a Boeing pilot working on the 737 MAX said in messages from 2016 that a new automated system was making the plane difficult to control in flight simulators. In a transcript of the exchange reviewed by The Times, Forkner complained that the Maneuvering Characteristics Augmentation System, or MCAS, was causing him trouble, telling a colleague that "It's running rampant in the sim." "Granted, I suck at flying, but even this was egregious," he added. He further commented that "I basically lied to the regulators [unknowingly]."
The Federal Aviation Administration said that Boeing notified the agency last Thursday of instant messages the company found months ago that suggest employees misled the agency. The agency said it viewed the messages as "concerning" and "is reviewing this information to determine what action is appropriate," according to media reports, with sources telling Reuters that the messages raised questions about the performance of the MCAS anti-stall system that has been linked to the two deadly crashes involving the now-grounded aircraft.
5. ANALYSTS REACT TO TEXTGATE: Multiple analysts downgraded Boeing following the news, and others lowered their price targets on Boeing shares.
Credit Suisse analyst Robert Spingarn downgraded Boeing to Neutral from Outperform with a price target of $323, down from $416. "We can no longer defend the shares in light of the latest discoveries, discoveries which significantly increase the risk profile for investors," said the analyst. Spingarn believes the pathway to return to service for 737 MAX "could be obstructed as the messages may shatter the fragile trust" between regulators and Boeing. The analyst, while admitting he can't opine on legal issues, also pointed out that the company is under criminal and civil investigations.
UBS analyst Myles Walton also downgraded Boeing to Neutral from Buy with a price target of $375, down from $470. Baird analyst Peter Arment downgraded Boeing to Neutral from Buy and cut his price target on the shares to $342 from $445. Additionally, BofA Merrill Lynch analyst Ronald Epstein lowered his price target on Boeing shares to $370 from $400 to account for higher uncertainty related to his financial projections and the 737 MAX return to service timeline.