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Why Boeing shares are gaining height today

What happened

The 737 MAX could be nearing its long-awaited return to the all-important China market, and the planemaker’s stock boeing (LICENSED IN LETTERS 8.27%) are taking off as a result. Boeing shares rose 5% on Wednesday morning after a report that one of its Chinese customers is conducting test flights of the 737 MAX.

And that

Boeing’s 737 MAX is making a slow comeback. The plane was once considered likely to break records for total units sold, but a pair of fatal crashes in late 2018 and early 2019 saw it grounded internationally for 18 months. The MAX was cleared to resume service in the US and other parts of the world in December 2020, but has yet to fly again in China.

China’s aviation regulator has cleared the plane for use in service at the end of 2021, but has required the 737 MAX to be modified and ordered additional pilot training before it can return to scheduled service.

It appears that at least one major Boeing customer is making progress completing that checklist. On Wednesday, Reuters reported that China Southern Airlines recently began test flights ahead of a possible return to service. China Southern is the largest Chinese operator of MAX aircraft.

The Chinese airline is reportedly trying to get the aircraft back into service ahead of an expected improvement in domestic demand after a two-month shutdown of Shanghai and other key Chinese markets due to COVID-19.

Now what

The importance of the Chinese market for Boeing cannot be underestimated. China has accounted for around 20% of Boeing’s commercial deliveries since 2017, and is expected to absorb around 25% of new aircraft produced over the next decade. The 737 MAX is Boeing’s flagship narrow-body jet, those used primarily for domestic flights, and without vibrant sales in China, the program would be in deep trouble.

Boeing has faced significant turbulence in recent years, first due to the 737 MAX problems and then due to the pandemic. The company’s total debt has soared by 400% in the past five years as Boeing struggled to stay liquid as plane sales slumped. The only way Boeing can pay off that debt and normalize its balance sheet is with healthy sales of new planes.

For Boeing, the return of a 737 MAX to China is just one small step in a long turnaround, and investors should be careful not to get too excited about the reports or assume the company’s troubles will fade quickly. But this would be an important step, and as a result, the stock is reacting favorably.

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