Concerns about new plane ground Boeing stock
Boeing soared early in 2019 and lifted the Dow Jones Industrial Average with it. Now concerns about the safety of the newest version of its flagship airplane have halted the momentum.
Shares rose 36 per cent in January and February thanks to steady orders for Boeing jetliners, including its popular 737. Then came Sunday’s deadly crash of a 737 Max 8 in Ethiopia, just months after the crash of a Lion Air Max 8 in the Java Sea. Now, aviation authorities from the United States to Britain to China have ordered the planes grounded, with US regulators saying new information showed some similarities between the two incidents.
US$29b stock-value loss
Boeing shares were down More than 11 per cent this week through Thursday, and had lost about US$29 billion in market value. The shares still have outpaced the market in 2019, and account for 14 per cent of the Dow’s increase so far.
The immediate question for Boeing investors is whether the grounding of the planes and crash investigations will have just a short-term effect on Boeing shares and finances, or have a longer-term impact.
“We think an investment in Boeing stock should take into account its long history of safe flight, a strong book of business and strong demand dynamics,” said Jim Corridore, an equity analyst at CFRA.
Canaccord Genuity analyst Ken Herbert said Boeing has likely been working on a software fix for the new 737s since the Lion Air crash last year and much of the cost has already been factored into its guidance for the year. But other risks remain. Plane delivery delays are now a concern along with costs for compensating airlines for service disruptions.
“We still see some uncertainty around the timing of the grounding and risk around the root cause analysis,” he said.
The Max 8 is the latest version of the single-aisle 737, which is the world’s most common passenger jet. Boeing has taken orders for more than 5,000 of the Max planes from scores of airlines and delivered 376 of them.
Commercial airplanes are by far the biggest contributor to Boeing’s bottom line. Revenue from that unit jumped 5 per cent to US$60.72 billion in 2018. The company’s defence and security business saw revenue rise 13 percent to US$23.2 billion last year.