Boeing is at its bottom but could stay at current levels for a while, says Sheila Kahyaoglu

Do you have a price target of $58 on Delta, more than 20% upside on the stock? What are you seeing in the travel market that’s giving you so much confidence? So actually when we think about Boeing, it’s the pressure and capacity should be positive for the domestic airline industry. Why is that so? Particularly on the 737 which is used for domestic travel versus the 787 which is a wide body for international travel, We’re seeing production pressures, right. Boeing is about 100 aircraft short already in the US domestic market to start the year at a 500 Max as we originally anticipated they would pour into this market, into the global market. So when we think about that 100 aircraft short in a 5000 narrow body market in the US, it seems like 2 1/2 points of capacity is taken out and that should be positive for pricing. If each point of capacity is one point of price, it’s a 10% move in EBITDA for these airlines. So significantly positive. And who would be the biggest beneficiary in our view, Delta and American. Why is that? Because unlike United and Southwest, they’re not expecting a significant number of planes. Sure. Let me jump in for a second, ’cause that’s completely counter intuitive. I would actually think having fewer planes would hurt their business. But you’re saying it’s going to lift pricing, something that we continue to see in the airline industry. Before, it used to be a race to the bottom for the cheapest seats, but now people want more of those premium seats. And if you have fewer planes, it’s more of a battle for the premium seats. Is that what you’re saying is going to benefit Delta? Exactly. Load factors are already high and if you’re an airline that’s not expecting a significant number of planes this year, that means you didn’t pre hire the pilots, the flight attendants, you’re not carrying that extra cost on your balance sheet. OK. On the other side here, I want to make sure we touch on Boeing as well. This certainly is not going to be a tailwind for Boeing. What do you make of these whistleblower allegations? CEO David Calhoun, who we know is stepping down, being called to Capitol Hill and just some of the ongoing cultural and production issues there. You know when it when it comes to Boeing, the number one question from investors is who is the next CEO? How long will it take? How long is the stock in CEO, interim CEO, purgatory. And once that CEO comes in, clearly they’re going to have a background that’s focused on operations and that’s going to be their biggest concern. How long is it going to take to turn around Boeing and lift production from the mid teens levels we’re seeing today on the 737 versus they should be a close to 40. So we’re at 50% lower output than we should be at. So Boeing, you know the biggest focus right now is the 737. The 87 whistleblower news did not have much detail to it, but I will tell you the 787 right now is producing at five a month. You know it’s just a much more crafted aircraft. Lower volume means you know less scrutiny on getting the aircraft out of production faster, right. So the 787 is experiencing some interior issues, but we don’t, we don’t see a major issue there right now. All right. So Sheila, next to you, we’re showing a chart of Boeing down 15% over the last year, Year to date down about 30%. I want to ask you, is all the bad news priced in? We did just mention these whistleblower allegations, but do you see the stock moving lower? Are we seeing Boeing right now at its bottom? We’re seeing Boeing at its bottom, but kind of could stay around here for, for the next few months. Why is that? Because we’re going to see in Q1 of 4.7 billion free cash flow outflow. Q2 is going to be another few billion. That means they have to generate a significant amount of cash in the second-half to meet their cash guidance for the year. So we could see another cut to free cash flow from where consensus is we’re significantly lower than that at the moment than the Street. So we could see numbers come down and the new CEO takes some time to revamp what the production line looks like. So it’s at the Lowe’s. We think all the bad news is priced in. We don’t expect any more bad news, but we could see a number of revisions.