With Some Of Its Aircraft Grounded, Boeing’s Stock Has Taken A Dive

With Some Of Its Aircraft Grounded, Boeing’s Stock Has Taken A Dive
Theodora Lee Joseph, CFA

about 2 months ago2 mins

Mentioned in story

What’s going on here?

After Boeing’s planes were grounded in the US, the aircraft manufacturer’s stock could be on the way out.

What does this mean?

Boeing 737 Max planes don’t have a reputation worth envying. Quite the opposite: their background is enough to make even frequent fliers book a week-long bus trip instead. The aircrafts were responsible for two deadly crashes five years ago, prompting a worldwide grounding and safety inspections. Then last Friday, an Alaskan Airlines Boeing 737 Max 9 plane confirmed that the aisle seat is worth upgrading for, when a panel blew out of a mid-air Alaska Airlines flight. And because the same sealable panel can be found in every single Max 9, rather than being an individual fault, the Federal Aviation Administration (FAA) had no choice but to ground 171 aircrafts of the same type. That might affect United and Alaska Airlines, the only two US airlines that use the controversial craft. But Boeing and Spirit AeroSystems – the supplier involved with the 737 Max – have already started suffering the consequences, with their stocks slipping 8.5% and 13% before midday on Monday respectively.

Boeing stock
Source: Google Finance

Why should I care?

For markets: Clear the air.

Boeing had planned to churn out more 737 models this year, not least because the company’s under pressure to get its factories working as hard as they were before the pandemic. After all, airlines want more planes and investors want more profit. But the FAA’s grounding could put a halt to those ambitions – and give rivals a chance to eat into Boeing’s share of the market. No wonder European company Airbus saw its stock pick up by more than 2% on Monday.

Boeing 737 Max 9 operators

The bigger picture: All for one, and one for itself.

Boeing’s "partnering for success" program has been hot gossip in the aviation industry for the last few years, with the tactic said to squeeze suppliers in a bid to make maximum profit. Now, the Alaska Airlines incident might come to symbolize that pushing suppliers to the brink is bad for business in the long term. But that lesson could’ve been learned in October, when Boeing was forced to grant Spirit AeroSystems better contract terms to save the supplier from a cash crunch.

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