Boeing (BA) plunged in morning trading for its sixth worst day on record following this weekend's crash of an Ethiopian Airlines 737 Max 8 that killed all 157 people on board. Analysts weighed in on Monday, with several saying that this crash, as well as the Lion Air crash six months earlier, are not expected to meaningfully impact Boeing's financials.
ETHIOPIAN AIRLINES CRASH: A new Ethiopian Airlines Boeing 737 MAX 8 plane crashed shortly after takeoff on Sunday, killing all 157 people on board. Ethiopian Airlines Flight 302 crashed in a rural area southeast of Addis Ababa, killing all 149 passengers and eight crew members on board. The black box from the Ethiopian Airlines flight that crashed on Sunday has been recovered by investigators at the crash site, Reuters reported, citing Ethiopian state TV, which may provide insight into how the accident occurred.
Boeing said the investigation into the Ethiopian Airlines crash is in its early stages and there is no need to issue new guidance to operators of its 737 MAX 8 aircraft based on the information it has so far, Reuters reported, citing an emailed statement from the company. "Safety is our number one priority and we are taking every measure to fully understand all aspects of this accident, working closely with the investigating team and all regulatory authorities involved," Boeing told Reuters. However, Boeing will postpone the planned ceremonial debut of its 777X widebody aircraft after this weekend's crash of an Ethiopian Airlines plane that killed 157 people, Reuters' David Shepardson and Tim Hepher reported. A Boeing spokesman said there is no delay to the 777X program.
PREVIOUS LION AIR CRASH: The Ethiopian Airlines crash occurred less than six months after another crash involving a 737 MAX 8, in which an Indonesian Lion Air flight plunged into the Java Sea, killing all 189 passengers and crew members. The Boeing jet had been delivered to Lion Air in August and had flown only about 800 total hours before it went down, according to reports. At the time, the Federal Aviation Administration confirmed the crash was the first fatal accident involving any type of Boeing 737 Max.
Both crashes are currently under investigation and there is no evidence of a link between the two, though similarities between the incidents have prompted caution among some aviation authorities and airlines.
WHAT'S NOTABLE: A spokesman for Ethiopian Airlines said the carrier had grounded its remaining four Boeing 737 Max 8 planes until further notice as an "extra safety precaution" following the latest crash, Christopher Bodeen of the The Associated Press reported. The airline was using five new 737 Max 8s and awaiting delivery of 25 more. The AP also reported that Indonesia has grounded its 737 MAX 8 planes for inspections.
Additionally, China has ordered all of the country's airlines to ground the Boeing 737 MAX 8 aircraft following this weekend's crash of an Ethiopian Airlines plane that killed 157 people, The Wall Street Journal's Trefor Moss, Wenxin Fan and Andy Pasztor report. China has defended the "unusual" decision, saying the latest accident is similar enough to October's Lion Air crash to merit the grounding to guarantee safety. China's Civil Aviation Authority said in a statement that it will contact Boeing and the Federal Aviation Administration and let airlines know when to resume flights after it makes sure the planes can fly safely.
Further, Cayman Airways grounded its two Boeing 737 MAX planes until more information about the crash emerges. Its CEO Fabian Whorms said that the airline stands by "our commitment to putting the safety of our passengers and crew first by maintaining complete and undoubtable safe operations."
The Boeing 737 MAX has been flying for less than two years and is a best-seller for the aircraft manufacturer. Boeing now faces questions from pilots, passengers, engineers and industry analysts following two similar crashes in a short period of time, James Glanz and Zach Wichter of the New York Times reported. Following the Indonesian crash in October, pilots were informed by Boeing and regulatory agencies of the MAX's new control system software, and airlines have provided training classes on it, they note. "Whether Ethiopian Airlines, which, unlike Lion Air, has a strong safety reputation, carried out that training was not immediately known," Glanz and Wichter reported.
ANALYST COMMENTARY: Buckingham analyst Richard Safran told investors in a research note that he does not believe the two MAX 8 crashes will have a meaningful financial impact to Boeing. Investors are likely to draw their own conclusions and focus on the optical similarities between the Lion Air and Ethiopian MAX 8 crashes, Safran said. From an investor perspective, the worst case would be that the Ethiopian crash was caused by a totally new flight control system problem unrelated to the Maneuvering Characteristics Augmentation System, the analyst added, noting that under this scenario, he thinks Boeing could need up to four months to develop and qualify a temporary and/or permanent software fix and install it. Morgan Stanley analyst Rajeev Lalwani told investors in a research note of his own that a second fatal accident on Boeing's new 737 MAX in less than six months is likely to cause heightened volatility in Boeing shares until there is clarity. Though Lalwani said it is too early to draw conclusions, there may be concerns of disruption around safety, production, groundings and/or costs, all of which he expects will be manageable longer-term.
Seaport Global analyst Josh Sullivan told investors in a research note that a second fatal crash in such a short time frame in "concerning," adding that net/net, the 737-MAX is Boeing's most important cash generating new platform.
PRICE ACTION: In morning trading, shares of Boeing are down about 8% to $389.46. Shares of some airline operators and Boeing parts suppliers have suffered this morning as well. Shares of Southwest (LUV) are down 1% and United Continental (UAL) is down fractionally, though Delta (DAL) and American (AAL) are both higher in early trading. Spirit AeroSystems (SPR) is down nearly 7% at time of writing, while Allegheny Technologies (ATI) is down 3%.
