$Boeing(BA)$ is in trouble again, this time with the 737 MAX 9 hatch falling off mid-flight.
According to media reports, an $Alaska Air(ALK)$ Boeing 737 MAX 9 passenger jet's emergency exit door suddenly blew off mid-flight, although no injuries. In response, the US Federal Aviation Administration ordered all 170-plus Boeing 737 MAX 9 planes grounded.
Most of these planes are operated by Alaska Air and $United Continental(UAL)$ , with a few operated by Icelandair and Turkish Airlines.
The incident has sent Boeing shares crashing by 8%, while $Spirit AeroSystems(SPR)$, the parts supplier that supplies the doors, fell 11%.
This latest incident brings back memories of two previous crashes. In October 2018 and March 2019, Indonesian Lion Air and Ethiopian Airlines flights crashed, killing a total of 346 people. Both planes involved were Boeing 737 MAX 8 models. The planes were grounded for nearly two years until they were recently allowed to resume flights.
Now, the 737 MAX has just resumed flights globally, this latest incident is making people question Boeing's quality control.
According to the current investigation, the possibility of the accident is pointed to the parts supplier Spirit AeroSystems, and with no injuries, the impact of the accident is significantly less than that of a few years ago.
In fact, I also bought Boeing a few years ago, the idea at that time was very simple, that is, large aircraft is the crown jewel of manufacturing, only Boeing and Airbus can manufacture in the world, and Boeing 737 models are very well-known. Historically, Boeing's stock price was also very bull, plus 737 has resumed flight in various countries, it seemed like a good investment at the time:
However, after making some money on my investment, I realized that Boeing might not be the best choice.
Firstly, Boeing's financial data doesn't match up to the "crown jewel" image that many people have in their heads. When it comes to profitability, Boeing's gross margin and net margin are actually pretty lackluster. In 2018, when things were going well for Boeing, its gross margin was only 19.4%, and its adjusted net margin was only 9.3%.
These kinds of numbers are even worse than what you would expect from regular manufacturing companies!
Low profitability is not Boeing's fault, and $Airbus SE(EADSY)$ 's profitability is also poor, with gross margins of 18% and adjusted net margins of only 8% :
So, why such a high-end large aircraft, profitability is very poor, who is the winner?
The answer could be the engine manufacturer!
Whether it's the Boeing 737MAX, the Airbus A320neo, or the C919, which China has just put into commercial use, the engine is LEAP.
The LEAP engine is jointly developed by CFM International (a joint venture between GE Aviation and Safran of France to develop and manufacture the CFM56 family of jet engines) and $General Electric Co(GE)$.
$Safran SA(SAFRY)$ is publicly traded in the United States under the symbol SAFRY and is primarily listed in France, where its stock price has fared much better than Boeing's:
When it comes to profitability, Safran's engine business has an operating margin of around 19% :
While GE Aviation's operating margin is also around 19% :
Compare that to Airbus and Boeing, whose operating margins for their large aircraft business are only around 11% at their peak. It's clear that building engines is more profitable than building entire airplanes!
Last time the Boeing 737 MAX was grounded, Airbus benefited greatly. This time around, with the door incident, Airbus has once again won big. If you're looking to invest in the aviation industry, it might be better to choose Airbus instead of Boeing.
When it comes to sales volume, the Airbus A320 series completely outclasses the Boeing 737 series.
Considering how unique the business model for large passenger jets is and how little room for error there is, Airbus might not be immune to the same problems Boeing is facing now. Therefore, it might be more worthwhile to invest in Safran, which provides engines for both Airbus and Boeing.
Looking at last night's performance, Boeing dropped by 8%, Airbus rose by 3.5%, and $Safran SA(SAFRY)$ rose by 1.47%.
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