Friday Jan 12 2024 00:25
5 min
Boeing shares continued their fall on Thursday, closing at $222.66 (down 2.27% on the day) after the U.S. Federal Aviation Administration said it formally launched an investigation into whether the aerospace giant failed to complete safety tests on some of its products.
The probe follows an cabin panel blowout on Alaska Air Flight 1282 in mid-air last week, which prompted an emergency landing.
“This investigation is a result of an incident on a Boeing Model 737-9 Max where it lost a ‘plug’ type passenger door and additional discrepancies,” the FAA said in a statement. “Boeing’s manufacturing practices need to comply with the high safety standards they’re legally accountable to meet. This incident should have never happened and it cannot happen again”.
“We will cooperate fully and transparently with the FAA and the NTSB on their investigations," Boeing said in a statement.
Boeing, along with multiple air carriers, is currently conducting inspections on planes with a similar configuration to the affected flight. However, indications suggest that the grounding of 737 MAX 9 planes may remain in place for some time.
Boeing stock, which trades on the NYSE under the ticker BA, declined by 1.1% during afternoon trading, reversing earlier gains of up to 0.2%. This week, Boeing shares have tumbled by close to 9% in the aftermath of the Alaska Airlines incident.
The S&P 500 index has risen by close to 2% over the same period, while the Dow Jones Industrial Average (DJIA), where Boeing is a key component, has struggled to find similar gains (+0.72%) due to the uncertainty surrounding the aerospace giant.
Alaska Air shares closed Thursday trading down 0.19%, while Spirit AeroSystems, the manufacturer of the MAX 9 fuselage for Boeing, fell by 5.96%, closing at $27.60. Spirit shares have shed close to 12.5% of their value heading into Friday.
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On Monday, Alaska and United Airlines reported the discovery of loose components on various grounded aircraft during initial inspections, raising new concerns about the manufacturing process of Boeing's top-selling jet family. Since Saturday, both carriers have canceled hundreds of flights, with United discontinuing approximately 200 and Alaska Air canceling 158 on Thursday.
The U.S. Federal Aviation Administration (FAA) suspended all flights with that model last Saturday and is still inspecting planes for loose bolts.
Boeing has been working with regulators to provide instructions for safely operating MAX 9 jets with emergency door plugs. These plugs are utilized for specific seating configurations that do not require all available emergency exits, and they have been in use for decades.
Jefferies analyst Sheila Kahyaoglu said on Wednesday that Boeing has revised its initial instructions based on FAA feedback. The FAA grounded 171 MAX 9 jets after the Alaska Air accident and said Tuesday that “the safety of the flying public, not speed, will determine the timeline for returning the Boeing 737 9 Max to service.”
“Safety over speed likely extends [the] grounding,” Kahyaoglu wrote. The analyst maintains a two-week pause in flights as her base case.
U.S. Transportation Secretary Pete Buttigieg said on Wednesday that no grounded aircraft would return to service until they are deemed safe, emphasizing that there is no specific timeline for their return to the skies.
His remarks highlight the expectation that the MAX 9 issue for Boeing will not be swiftly resolved. However, one positive aspect for investors amid the turmoil is that the MAX is a relatively low-volume plane.
According to Kahyaoglu, the two-week grounding would cost Boeing approximately $36 million. Wall Street estimates suggest that the MAX 9 grounding could incur costs ranging between $1 million and $2 million per day in customer compensation.
Boeing is anticipated to generate around $6 billion in free cash flow in 2024.
Equity analysts at Bernstein maintained their Outperform rating for Boeing shares and a $272 per share price target.
Their latest comments were made after recent media reports indicated that the problem with Alaska Air's Flight 1282 extends beyond an isolated manufacturing issue. Monday’s inspections at Alaska and United suggested a consistent pattern of substandard workmanship and quality lapses.
This trend is presumed to have its roots at Spirit Aerosystems, where the fuselage assembly takes place.
“While Boeing may not be directly responsible, it should have exercised better inspections or oversight at Spirit. Despite the headlines, we do not see this as a ‘737MAX problem’ or design issue”, the analysts said.
The analysts anticipate that "few customers" will consider transitioning away from the MAX, as the "commonality" within fleets and subfleets at major carriers is "just too important."
At the time of writing on January 12, the Boeing share price last stood at $222.23, down 2.27% as of Thursday close and tumbling by 9.1% over the past 5 days. Shares of Boeing rival Airbus SE on the Euronext Paris exchange have gained over 3.2% since Monday.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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