Shares of Boeing (NYSE: BA) are trading sharply higher this week on reports China Southern Airlines is again testing the embattled 737 MAX jet.
737 MAX Closing in on a Return?
China Southern Airlines flew test flights with Boeing 737 MAX jets for the first time since March, suggesting that the troubled airliner could be close to returning to service as demand picks up pace.
According to flight tracking providers, a 737 MAX plane took off from Guangzhou Tuesday morning and landed around two hours later in the city of Nanyang, before finally returning back to Guangzhou in the evening.
The test flight comes three months after China Southern last flew the MAX jet, just a week before the fatal crash of the 737 used by China Eastern Airlines Corp. The crash caused Boeing to lose confidence once again in China and other geographical markets after MAX’s prior crashes in Indonesia and Ethiopia.
The flight tracker websites showed that China Southern had not conducted any flights with MAX jets since March 14. The test flight earlier this week comes as travel demand continues to gain momentum in China after the authorities reopened Shanghai following its 2-month lockdown due to a surge in coronavirus infections.
The lockdown restrictions caused demand to plunge by 69% and 80% in May and April, respectively, according to data from China Southern. Furthermore, travel firm OAG reported that local airlines boosted their passenger capacity by 8% this week compared to last week.
The country’s aviation regulator lifted the ban on 737 MAX in late 2021 after nearly three years, though the watchdog requested certain modifications and additional training for pilots before allowing the jet to return to service.
MAX was initially expected to return to service at the start of 2022, however, the new coronavirus outbreak and China’s zero-COVID policy delayed the jet’s return.
Before regulators banned the MAX, Boeing was selling around 25% of the planes it built annually to Chinese airlines, which remain its biggest customers.
Analyst Sees Positive Near Term Catalysts
Charles Armitage, an analyst at Citi, upgraded Boeing stock to Buy and slashed the price target from $219 to $209. The analyst expects 787 deliveries to restart soon.
“Last year, the Chinese authorities agreed what modifications and training are required to return the 737MAX to commercial service. However, prolonged lockdowns in China have limited the demand for capacity,” he wrote in a note to clients.
“As restrictions are lifted, we expect the 737MAX to return to commercial service. However, we expect both 787 deliveries and 737MAX return to service will occur at some stage (just not sure when). Therefore, we see these events as incrementally positive, rather than a step change in risk.”
Armitage believes that Boeing has addressed notable medium-term risks, though the analyst still prefers Airbus as the Netherlands-based planemaker delivers similar value, but with less risk.
Boeing said Tuesday it delivered 35 jets in May, more than double in the same period last year and remaining steady on a sequential basis. The company also reported 23 gross orders last month, compared to 73 in May 2021.
The U.S. planemaker delivered 165 jets since the start of 2022, well below its main rival Airbus which delivered 237 jets during the same period. One of the reasons why Boeing lacks Airbus’s pace is the company’s inability to deliver its 787 Dreamliner jet after regulators halted deliveries of the airliner due to multiple fuselage defects in May last year.
But the Federal Aviation Administration (FAA) said earlier this week it had approved Boeing’s recertification plan for 787, suggesting that the jet could also be returning to service shortly.
Shares of Boeing declined more than 35% since the start of the year, and remain down nearly 70% from its all-time high recorded in March 2019.
Boeing stock price is trading higher this week on reports its 737 MAX jet could soon receive a clearance in China to fly again.