CNBC Investing Club

China Southern Airlines' 737 Max delivery outlook is encouraging for Boeing stock

A Boeing 737 MAX 10 airliner pauses while taxiing on the flight line before its first flight at Renton Municipal Airport on June 18, 2021 in Renton, Washington.
Stephen Brashear | Getty Images

Shares of Boeing (BA) turned positive Wednesday, following reports that China Southern Airlines expects to receive 39 deliveries of 737 Max jet this year.

This is encouraging news for Boeing, a Club stock that's caused considerable frustration since we first bought it in October 2020.

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That was two months before the 737 Max returned to service in the United States. The entire fleet was grounded worldwide in March 2019 following a deadly crash that month and one in October 2018. Investigations blamed the crashes, in part, on an automated flight-control system. Boeing ended up overhauling the Max design and the software.

What the report says

China Southern expects to receive 103 of Boeing's 737 Max jets by the end of 2024, Bloomberg reported, citing the carrier's annual report. Thirty-nine of those are expected to be delivered this year, according to Bloomberg. China Southern is one of China's three largest airlines.

Why it matters

After a Boeing 737-800 next generation plane crashed in China, on March 21, the Club pushed put our timeline for when we believed the 737 Max would return to service in China.

Previously, we thought deliveries were on the doorstep — a development that's been part of our investment thesis in Boeing — and regulatory clearance would follow shortly after.

  • To be clear, last week's China Eastern Airlines crash involved a different type of Boeing jet, a predecessor to the Max, which had a stellar safety record.
  • We also want to reiterate last week's tragedy involved a different airline than the one reported on in Wednesday's delivery news.

But still, we thought it may prompt regulators in Beijing to adopt a more cautious view on clearing the 737 Max to fly in the country's skies again. The jet has been grounded for about three years in China.

It's a positive development that a Chinese airline — in this case, China Southern — plans to keep the 737 Max in its outlook and hasn't written off Boeing.

Bottom line

We'll continue to monitor the investigation into the China Eastern crash, but we hope Wednesday's news from China Southern means a return to service for the 737 Max in China is still in the cards this year.

While there's still a lot of uncertainty with respect to the China Eastern investigation and whether the Max will return to service in China, this report is an incrementally positive update regarding a stock that's been a challenging for us.

The Club has a 2 rating on Boeing — meaning we'd only considering buying shares on a pullback. As of Wednesday's close, Boeing shares have lost just over 3% in 2022, roughly the same decline as the S&P 500 over the same time frame.

(Jim Cramer's Charitable Trust is long BA. See here for a full list of the stocks.)

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