Saudi Sovereign Wealth Fund Has Bought A $700m Stake In Boeing
Last week, US regulatory filings showed that Saudi Arabia’s
sovereign wealth fund, the Public Investment Fund (PIF) took a $713.7 million
stake in American planemaker Boeing. Hitting a peak value of $440 per share in
March 2019, the stock took a hit due to the 737 MAX crisis but then plummeted
with the onset of the COVID-19 pandemic.
Boeing’s monetary value as a company has taken a beating in
recent months. The company’s current share price sits at about $138. This is
just one-third of its value from 14 months ago when it hit a record high of
$440.
Of course, two key factors have caused this dramatic fall in
Boeing’s share price. Firstly, we had the 737 MAX crisis. As Boeing’s most
popular commercial product was grounded and put under intense scrutiny, we saw
the share price slide to as low as $335. Still, this was only a 25% dip at its
worst. This is likely due to investor confidence stemming from Boeing’s wide
range of other products in various sectors, including space and defense.
Furthermore, in terms of its commercial division, the 737
was just one model while the company was still offering 787s and the upcoming
777X. We can also consider that investors had a firm faith that the 737 MAX
would recover and re-gain its certification in a reasonable amount of time.
Of course, the big reason why Boeing’s value is as low as it
is right now is COVID-19. Around the beginning of March, the company’s share
price took a dramatic freefall, going as low as $95 per share – a nearly 80%
drop from its March 2019 high. It has recovered a little since then, but not by
much. The current price reflects the fact that it will take quite some time for
commercial aviation to recover.
Therefore, Saudi Arabia’s PIF probably sees Boeing as a good
investment opportunity at its current value. With new leadership at Boeing and
a pledge to address fundamental workplace issues, Boeing could come out of this
a stronger company – although it may take a few years.
For any potential investor, a key question to ask during a
time like this is “has the stock gone as low as it can go?” If investors think
that the price has reached rock-bottom, then logic dictates that it can only go
up from here. While it’s still difficult to tell if the company’s share price
has indeed stabilized, the PIF must feel like it’s worth taking the calculated
risk.
This move has interesting implications for one particular
airline in Saudi Arabia.
The country’s flag carrier, Saudia (formerly Saudi Arabian
Airlines) is wholly owned by the Kingdom of Saudi Arabia. Therefore, it would
seem to be in the best interest of the country for its airline to order Boeing
jets.
The airline’s fleet currently sits at 65% Airbus aircraft (a
mix of A330, A321, and A320 jets), with the remainder Boeing (777 and 787). Its
newest jet is the Boeing 787-10, having taken delivery of its first of the type
in October 2019.
Perhaps because of this new investment in Boeing, we’ll see
new orders come more from Boeing than Airbus in the years to come. Of course,
for the foreseeable future, it’s hard to imagine that any airlines will be
placing new aircraft orders.
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