Boeing shares tumble after US grounds some 737 MAX jets

Boeing shares fell 6.9% on Monday after the temporary grounding of some of its best-selling 737 MAX jets by the US aviation regulator.

A piece of fuselage tore off an Alaska Airlines 737 MAX 9 jet on Friday after take-off from Portland, Oregon, forcing pilots to turn back. The US Federal Aviation Administration (FAA) subsequently ordered the temporary grounding of 171 narrow-body MAX 9 jets with a similar configuration.

Wall Street analysts on Monday viewed the accident as a temporary setback to Boeing, but some took a dim view of the incident as another in a series of quality problems related to the 737 MAX family of aircraft. The fuselage is produced by Spirit AeroSystems, which separated from Boeing years ago.

“It highlights a history of quality escape problems, particularly at Spirit AeroSystems. Quality escapes are not acceptable in an industry in which single failures can have serious consequences,” Bernstein analysts wrote.

Spirit manufactured and initially installed the fuselage part on the brand new MAX 9 jet in question. Its shares fell 7.9%.

Airline shares initially fell, but had since recovered, with Alaska Airlines down marginally, while United Airlines, the other US carrier that operates the jet, was up 2.1%.

Airbus’ shares were up 2.7% on Monday. The European aeroplane maker has expanded its market share since two Boeing MAX crashes in 2018 and 2019 that killed nearly 350 people and led to the MAX's worldwide grounding for 20 months.

Airbus will announce that it delivered 735 jets last year, beating Boeing to remain the world’s largest aeroplane maker for the fifth year in a row, industry sources said. Reuters last week reported that the number would reach the mid-730s, beating the company’s target of 720.

Some analysts said the problem appeared to be a one-off manufacturing issue, rather than a design issue that is more costly to fix. They also noted the number of aircraft affected was small.

“A serial manufacturing issue could require a design or manufacturing change for Boeing or the responsible supplier, but we would not expect an outsized cost,” Melius Research analyst Robert Spingarn said.

Boeing has delivered 214 of the 737 MAX 9 jets, or 16% of the more than 1,300 MAX aircraft in service, most of which can still fly, including 737 MAX 9 jets with ordinary doors instead of the replacement panels.

Some investors saw Monday’s dip as a buying opportunity.

“I think in the long term, Boeing will get this figured out. They have a good business and make a good plane,” said Tony Bancroft, portfolio manager at Gabelli Funds, which owns a less than 1% stake in Boeing.

Investors will be keenly watching for more steps from the FAA and other regulators. The FAA is evaluating whether to grant an exemption that would allow the MAX 7 to attain certification before Boeing completes required design changes, but the MAX 9 accident could make that exemption less likely.

“Further delays to the MAX 7 certification appear to be the highest probability negative repercussion at this point,” said analysts at Deutsche Bank Research.

On possible airline-compensation costs arising from Friday's accident, Citi analyst Jason Gursky estimated a daily cost of $2.3 million to Boeing, using RTX’s recent engine issues as a template for calculation.

Reuters