Boeing’s 2024 struggles have centered on safety concerns and production issues with the 737 MAX, compounded by FAA oversight and delays that have disrupted recovery efforts. 

However, rising global air travel presents an opportunity for Boeing to reclaim its market dominance, though operational and reputational challenges remain.

Astronics (ATRO), a key Boeing supplier, has also been heavily impacted, facing revenue losses and profitability declines due to the 737 MAX’s production delays and broader aerospace downturns. 

Despite increasing sales margin improvements, Astronics remains heavily reliant on Boeing, making diversification critical. 

Litigation risks and dependency on Boeing’s recovery add uncertainty, though analysts forecast a brighter future for the company. 

Investors should weigh Astronics’ upside potential against these challenges.

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Boeing (BA) has faced an array of challenges in 2024, with its reputation shaken following production issues and safety concerns surrounding its flagship 737 MAX aircraft.

The year started with the controversy of door plug detachment on a 737 MAX operated by Alaska Airlines, reigniting questions about the safety of a model that had already endured global groundings and severe reputational damage following two tragic crashes in 2019.

This incident, coupled with ongoing FAA oversight, disrupted Boeing’s plans to ramp up production and deliver on its ambitious targets.

Despite these setbacks, the company stands at a critical juncture.

With global air travel recovering beyond pre-pandemic levels and the demand for aircraft on the rise, Boeing has an opportunity to restore its dominance in the aerospace sector.

Investors remain cautiously optimistic, eyeing a potential recovery fueled by increased orders and steady progress in addressing safety and quality concerns.

However, the road ahead is uncertain, as Boeing must overcome lingering operational and reputational challenges to regain market confidence.

For companies tied closely to Boeing’s success, this recovery represents not just an opportunity but a necessary lifeline.

Astronics (ATRO) has faced significant challenges over the past several years, struggling to recover from setbacks that began in 2019.

The company, which provides critical systems for the aerospace and defense industries, was heavily impacted by Boeing’s 737 MAX grounding and production delays.

At the time, there were expectations of a rapid production ramp from 42 airplanes per month to 57 by 2021. Instead, production dropped to zero, and over 800 planes were grounded.

The subsequent pandemic only deepened the crisis for Astronics, as the aerospace industry came to a near standstill.

Even as air travel has recovered, Boeing’s continued production issues have prevented Astronics from fully bouncing back.

All these factors combined caused the company’s profitability to suffer, with its Uniform return on assets ”ROA” dropping from 13% in 2018 to around (1%) last year.

Astronics’ reliance on Boeing is a central issue. The company supplies lighting, safety systems, electrical power systems, and other critical components for aircraft, including the 737 MAX.

While aftermarket demand has been strong, the delays in new plane deliveries have caused a ripple effect, dragging down revenue opportunities.

Diversifying its customer base or reducing its dependency on Boeing would be critical for Astronics to stabilize its business and mitigate risks.

Recent developments, such as a strike at Boeing, have added to the pressure, with Astronics reporting a $3 million revenue drag during the quarter due to lower-than-expected deliveries.

Despite these challenges, Astronics has shown some operational improvements. 

In the third quarter, sales grew by 25% year-over-year, driven largely by the aerospace segment, which accounted for most of the growth.

Margins improved significantly, increasing from 12.7% to 21%, supported by higher production volumes and favorable pricing trends.

Litigation risks are another hurdle for Astronics. The company is involved in a patent infringement lawsuit with Lufthansa Technik over an in-seat power product line.

While some rulings have been favorable, the company has set aside $17 million for potential damages, with the final ruling in Germany expected in 2026.

The long-term outlook for Astronics depends heavily on a recovery in Boeing’s production rates and the broader aerospace market.

Demand for new aircraft and aftermarket services is expected to remain strong, which could support Astronics’ revenue growth.

And we can see that analysts’ expectations are much more favorable for the future compared to the past 3 years.

They expect a significant recovery.

Take a look…

For investors willing to accept these risks, Astronics can offer significant upside potential.

However, the road to recovery will require both Boeing’s resurgence and Astronics’ ability to reduce its dependence on its biggest customer. Investors should weigh these factors carefully before making a decision.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research