National Post (National Edition)
No recovery roadmap for companies in crisis
FROM THE VOLKSWAGEN DIESEL SCANDAL TO UTILITY PG&E AND THE CALIFORNIA WILDFIRES — AND NOW BOEING’S 737 MAX DEBACLE — INVESTORS FIND THERE IS NO TIMETABLE FOR SHAKING OFF DISASTER.
Shares of Boeing Co. have taken a pounding this week, amid questions about the safety of one of its airplane models following two deadly crashes in five months.
Just how deep the damage to the company might be is still unknown, but like others companies before it that have faced major crisis, the market’s response will to a great extent depend on how quickly it can restore trust with the public.
On Sunday, 157 people on a flight from Ethiopia to Kenya were killed when the Boeing 737 Max 8 they were travelling in crashed shortly after takeoff. The incident followed another crash that killed 189 passengers who were on board a 737 Max 8 to Indonesia in October.
Following the crash on Sunday, Boeing’ s stock dropped more than 11 per cent. On Wednesday, the troubles deepened, with both the U.S. and Canada announcing they would be grounding 737 Max 8 and Max 9 planes.
Before it can move forward, Boeing will be stuck in limbo until investigators determine what caused the latest accident, according to Edward Jones analyst Jeff Windau. Doing so can take weeks, if not months.
“I know Boeing is working on a software fix,” said Windau. “If it’s something mechanical, or in the worst case, the certification has to be re-evaluated, well that really starts to push out deliveries and potential orders get shifted and that’s more of a financial impact.”
Boeing has been in crisis over its planes before — although not to this degree — and escaped mostly unharmed. In January 2013 and January 2014, the lithium-ion batteries in its 787 Dreamliners malfunctioned causing smoke and fire to break out in the first two and gas to leak in the third.
While the battery problems also led to planes being grounded, Boeing’s stock did not suffer from a mass selloff as it did after the crash in Ethiopia.
For other companies that have faced significant crises of confidence, the road to recovery can be a long one.
In September 2017, Equifax Inc. was hacked, exposing the personal information of 148 million people, according to a U.S. government report. In the two weeks that followed, the stock lost more than 33 per cent of its value, bottoming out at US$92.98.
While the stock has slowly recovered over the last 18 months, it has still not struck US$141.50 — the price it closed at before the hack was the announced.
Equifax spent months trying to prove to its investors and the government that it was remedying the situation and investing in its cybersecurity. It also helped that the U.S. government chose not to sanction the company.
The opposite occurred with Volkswagen AG and the pain of its investors was naturally prolonged. VW was found guilty of rigging its engines to meet emissions rules. The stock plunged more than 50 per cent below its 52-week-high from March 2017 and has never come close to reaching those levels again.
In PG&E’S case, a crisis can even lead to bankruptcy. The utilities company was found responsible for two California wildfires that caused 86 deaths.
As firms dig themselves out of crisis, investors should try to assess whether the company can recover and if the expected timeframe is worth the pain. It comes down to trust, said Stifel Nicolaus analyst Shlomo Rosenbaum, although regaining it is not always possible. “You end up going from darling to devil pretty quickly,” Rosenbaum said.