Boeing shares fell almost 8% in premarket trade Monday, as investors absorbed news that the Federal Aviation Administration had ordered airlines to ground dozens of Boeing 737 Max 9 planes for urgent inspections.
- IMPORTANT NOTES
- Boeing stock fell in premarket trade on Monday.
- The FAA grounded dozens of Boeing Max 737-9 planes after a door plug burst out mid-flight during an Alaska Airlines trip.
- The crash on Friday came precisely as Boeing was attempting to increase Max output, calling into question the company’s quality claims.
The FAA issued the restriction on Saturday after a door plug blew out in the midst of an Alaska Airlines flight on Friday at roughly 16,000 feet. Alaska Air shares were down 5% in premarket trade. The event has re-focused attention on Boeing. Boeing CEO Dave Calhoun has been trying to reassure investors that the company is on the mend following a spate of difficulties that included two crashes that killed 346 people, pandemic supply chain mayhem, and a number of quality flaws.
Groundings on a large scale are uncommon in aviation, but the FAA has been examining Boeing and its best-selling 737 Max since the catastrophic disasters in 2018 and 2019. Boeing has stated that it supports the FAA’s decision to halt the Max 9 jets for inspections. It was collaborating with federal officials on developing directions for airlines to begin inspections. The crash on Friday came just as Boeing was attempting to increase Max output.
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“An escape of this magnitude calls into question the quality control of the 737 delivery ramp, as well as the impact of inexperienced labor on both Boeing and its supply chain,” Bank of America aerospace analyst Ron Epstein wrote in an analyst note Monday, noting that the plane had only been delivered a few months before. “This aircraft still had ‘new airplane’ smell and the sticker price in its window.”
The FAA announced on Saturday that its emergency airworthiness directive, which applies to US airlines and carriers operating on US territory, would affect around 171 planes. According to Cirium, Alaska Airlines and United Airlines are the largest operators of the 737 Max 9 variant, with approximately 215 flying globally. United Airlines has 79 of the 171 aircraft grounded as a result of the decision, Alaska has 65, and the remaining 74 are divided across six other airlines.
The National Transportation Safety Board detailed a horrific few minutes onboard the Alaska Airlines flight over the weekend, beginning with a loud blast and a force so powerful that it tore off headrests and seatbacks and ripped out the cockpit door. The blown-out plane panel was discovered in the property of a schoolteacher, according to the NTSB late Sunday.
Images published on social media showed a hole in the plane’s side and people wearing breathing masks. After departing for Ontario, California, Alaska Airlines Flight 1282 returned to Portland, Oregon. According to Russ Mould, investment director at AJ Bell, Friday’s event is the latest in a “string of problems for the company,” and airlines who use 737 Max jets will be “thinking long and hard about their future aircraft requirements.” Shares of Boeing’s European rival Airbus rose 1.7% by midday Monday, as investors anticipated that it could eat into the market share of the US behemoth.
“There are naturally questions being asked about the quality checks and whether Boeing is trying to do too much too fast,” Mould said in a statement.
“Boeing’s management will face significant pressure from regulators and customers to explain what’s going on, implying significant headwinds for the business.” It’s no surprise that investors have rushed to sell their shares as the risks to the investment case have increased.”
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