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.

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Boeing’s share price is a fraction of what it was in early February. Photo: Getty Images

From the 737 MAX to COVID-19

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.

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Saudi Arabia has been a strategic partner for the United States in terms of regional (Middle East) security. Furthermore, the Saudi government is known to be a big customer of US defense products. Photo: Getty Images

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.

A good deal?

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.

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The Boeing 737 MAX remains grounded but there is a high degree of anticipation that re-certification will happen soon. Photo: Boeing

Will this change commercial aviation in Saudi Arabia?

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.

Saudi Sovereign Wealth Fund Has Bought A $700m Stake In Boeing
Saudia has 16 Boeing 787s in its fleet. They are a mix of the -9 and -10 variants. Photo: Chris Loh/Simple Flying

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.

How do you see this deal affecting Saudi commercial aviation? Let us know your thoughts in the comments.