I've been a long-time bull of Boeing Inc. (NYSE:BA) since the stock was trading around $150 U.S. share level. Now, we're back at these levels, with the company’s stock giving up years of gains in just a few short months due to a variety of strong headwinds.
In this article, I'm going to discuss one particular headwind I think will be the biggest hurdle for Boeing to overcome.
New plane demand is a catalyst I think could be most bearish for the aerospace manufacturing sector for the next five years. A confluence of structural factors for the sector makes the generation of new plane demand the single biggest focal point for Boeing and its competitors right now.
With planes largely grounded, an incredible number of leased planes which may not be leased for some time, the idleness I expect this sector to portray for the near term could cause structural issues for Boeing that could impact the long term.
The longer it takes for the existing inventory of planes worldwide to be leased or purchased, the higher the impact on Boeing's order backlog, a key driver of a company’s share price.
With supply and demand of planes likely to remain out of whack for at least the next year, companies leasing plans are likely to slash their rates, creating a significant reduction in Boeing's pricing power near term.
The discounts purchasers will require to put in orders for planes are likely to soar, and profitability is likely to take a back seat for the time being. Investors, therefore, would be better served keeping Boeing on the watch list rather than the buy list today.
Invest wisely, my friends.
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