Americans of German heritage include some very distinguished names, from Dwight Eisenhower, who was president from 1953 to 1961, to the singer Linda Ronstadt. Not to mention, of course, William Boeing, the timber and mining magnate who, in 1916, founded the aircraft company that bears his name.
Boeing has had its ups and downs, like any big corporation, but its post-war history has been marked by two calls that it made correctly, while its rivals bet against it and lost.
A vanity project
The first was the decision at the end of the Sixties to go into production with the 747 “jumbo” jet, a comparatively slow-moving aircraft, at a time when the future seemed likely to belong to ultra-fast vehicles such as the Anglo-French Concorde and the Soviet TU-144. Even the US and Boeing itself explored the possibility of building a supersonic transporter, but this project was cancelled in 1971.
In the event, Boeing was proved triumphantly correct in the decades that followed, as 747s introduced millions of people to air travel and far-flung tourism, while Concorde, in service from 1976 to 2003, had to have its development costs written off by the British and French governments.
Following a crash at the 1973 Paris Air Show, the TU-144 operated solely within the Soviet Union.
Boeing’s second big call came when its European rival Airbus announced in 1994 that it planned the world’s biggest passenger airliner, the A380. Boeing declined to follow Airbus into the world of the “super-jumbo”, despite excited talk of how these massive craft would resemble cruise liners, with shops and restaurants on board.
In February 2016, Tom Williamson, number two at Airbus, said the A380 would never be profitable and had, essentially, been a vanity project.
“A year of profound disruption”
Two big decisions on the future nature of air travel, both of which were vindicated.
But with much of the world locked down as governments grapple with the coronavirus, and severe restrictions on air travel, Boeing, as the world’s largest aircraft manufacturer, has seen its stock price take a battering. And on top of its coronavirus woes, Boeing has been hit by the fatal crashes of two of its 737 MAX narrow bodied airliners, which led to worldwide grounding of the aircraft from early 2019 to November 2020.
The USA’s powerful Federal Aviation Authority has since cleared the 737 MAX to return to service provided modifications are made.
On January 28, Boeing stock traded at $194.11. Its high point for the 12 months was seen on February 13, 2020, at $345.73, and its low point was in March – as the full implications of the virus became clear – at $98.21 on the 23rd of the month.
Taking a longer backward view, five years ago the stock traded at $108.76 on February 12, 2016. Its five-yearly high was achieved on September 20, 2019 and its five-yearly low was, again, the price to which it sank on March 23.
What can all this tell us about the likely performance of Boeing stock during the next 5 years and how it can it help to draw up a Boeing stock long-term forecast?
Reporting fourth-quarter results on January 27, president and chief executive officer Dave Calhoun said: “2020 was a year of profound societal and global disruption which significantly constrained our industry. The deep impact of the pandemic on commercial air travel, coupled with the 737 MAX grounding, challenged our results. I am proud of the resilience and dedication our global team demonstrated in this environment as we strengthened our safety processes, adapted to our market and supported our customers, suppliers, communities and each other.”
He added: "Our balanced portfolio of diverse defence, space and services programmes continues to provide important stability as we lay the foundation for our recovery. While the impact of Covid-19 presents continued challenges for commercial aerospace into 2021, we remain confident in our future, squarely-focused on safety, quality and transparency as we rebuild trust and transform our business."
A three-way bet
That stress on programmes other than aircraft manufacture gives some clue as to where Boeing shares could be heading in the years ahead. In the fourth quarter of 2020, revenues from commercial aeroplane sales totalled, in round numbers, $4.7bn, down from $7.5bn during the same period in 2019.
Meanwhile, Boeing’s defence, space and security activities earned $6.8bn, against $5.9bn during the fourth quarter of 2019.
Put simply, whether as a result of the coronavirus or longer-term trends – or both – Boeing is no longer simply an aircraft maker. That provides valuable diversification at times such as this, given that space activities and the needs of military defence are largely unaffected by the virus.
That said, aircraft will remain of key importance, so what is the outlook here? Some of the more excitable commentary last year suggested a fragmented world in which people would hunker down behind their national frontiers.
But is this really likely? People who have tasted and enjoyed mobility across continents are unlikely to give it up.
The industry body, the International Air Transport Association (IATA), pointed towards a gradual re-opening of air routes. Alexandre de Juniac, IATA’s director general and chief executive officer, said: “We can see the light at the end of the tunnel as vaccination programmes roll out. Turning this vision into a safe and orderly re-start will require careful planning and coordination by governments and industry.”
He added: “This will be challenging as the priority for the weeks and months ahead will be containing the spread of new variants. But even as the crisis deepens, it is important to prepare the way for a resumption of flights when the epidemiological situation permits.”
To sum up, Boeing shares represent a three-way bet: on the strength of the company’s diversification; on the resumption of mass air travel when circumstances permit; and on Boeing’s continued ability to make the right calls.
The balance of probabilities would put Boeing’s share price in five years’ time about three times its current level.