Grounding puts Boeing on spot
Analysts weigh reaction, solutions by the firm
In another hit Boeing’s reputation, the U.S. on Wednesday joined the rest of the world in grounding the 737 MAX 8, the company’s prized jet that is now barred from skies worldwide.
Is the company seriously hobbled? The answer depends on whether investigators can determine a definitive cause behind the crash in Ethiopia on Sunday that claimed 157 lives, as well as another crash that preceded it in October, and if Boeing can come up with a remedy to address both, experts say.
The U.S. had been the last holdout, with the Federal Aviation Administration saying that it stood by the aircraft’s safety. But President Donald Trump said on Wednesday that an emergency order would be issued banning flights by not only the MAX 8, involved in the two recent crashes but also the slightly larger 737 MAX 9. Flights currently in the air were to be ordered to land as soon as possible.
It’s the second crash of a 737 MAX 8 in less than five months. A Lion Air flight went down in Indonesia in October killing 189 people.
“Certainly there is near-term damage to both Boeing’s reputation and its business,” said Jim Corridore, director of industrials equity research at CFRA Research. “But how long lasting and how deep this impact is depends on the outcome of the investigation and how Boeing reacts.”
After falling as much as 3 percent
during the day, Boeing’s stock price edged up 0.5 percent to end at $377.14 on Wednesday. So far this year, shares have risen more than 17 percent.
On Wednesday, travel search site Kayak announced that, in the aftermath of the crash in Ethiopia, it will enable fliers to filter out aircraft they do not want to fly starting this week.
“We’ve recently received feedback to make Kayak’s filters more granular in order to exclude particular aircraft models from search queries,” Kayak’s chief technology officer Giorgos Zacharia said by email. “We are releasing that enhancement globally later this week and are committed to providing our customers with all the information they need to travel with confidence.”
Boeing has been working on the automated anti-stall system that is believed to have caused the Indonesian accident, but the inquiry into what led a second 737 MAX 8 to nosedive on Sunday in Ethiopia is just beginning.
“This conceivably could go on for weeks,’’ Richard Aboulafia, an aviation analyst with the Teal Group, said of the investigation, However, he believes that a company that made billions in revenue last year will ultimately be able to find a fix and recover from this crisis.
Though the deaths in the plane crash are a “tragedy,” he said, “I just don‘t think it’s that serious a problem from a company health standpoint.
The worst-case scenario is in the hundreds of millions” in monetary losses.
He added that “the fundamental layout of the plane has been around for half a century ... They’ll find a solution in pretty quick order, if indeed there’s anything about this crash that has anything to with the plane.”
Henry Harteveldt, a travel industry analyst with Atmosphere Research Group agreed that Boeing could bounce back, but it has to move fast.
“If they find the cause (or causes) of the 737 MAX’s problems, so swiftly, and develop a suitable set of solutions, then Boeing should be fine,” he said. “Boeing has no time to waste, though. At this point, it is possible some airlines may be considering scaling back their 737 MAX orders, and airlines that have not yet placed orders need to be convinced the MAX is safe or they will buy from Airbus.”
Shortly before the U.S. made its move, Canada grounded the 737 MAX, banning the aircraft from flying through its airspace on Wednesday. It joined countries and regions around the world, including the European Union, United Kingdom, Indonesia and China, that had taken similar actions.
Until Wednesday afternoon, two U.S. carriers, American and Southwest, were the only airlines in the world continuing to fly the MAX 8, while United flies the MAX 9.
Southwest operates 34 MAX 8 jets in its fleet of over 750 Boeing 737s.
American flies 24 MAX 8 jets, and said Tuesday that it was waiting on the delivery of 16 more this year. Another 20 should be delivered in 2020 and 2021, and 40 are slated to join its fleet in 2024 “and beyond.”
United has 14 737 MAX 9 jets.
While the 737 has been around for decades, its MAX is a newcomer. Only 350 of the planes are in service right now, but more than 4,660 are in the pipeline.
“It’s the single most important product that Boeing has right now,” Corridore said. “It’s the largest portion of what’s in Boeing’s backlog.”
Boeing has rebounded before. Its long-awaited Dreamliner was grounded in January 2013 after a battery caught fire on one jet, and a smoldering battery forced an emergency landing of another.
But Boeing “found a way to fix the problem and the 787 Dreamliner has continued to fly without incident,” Harteveldt said.
“If they find the cause of the 737 MAX’s problems ... and ... solutions, then Boeing should be fine.” Henry Harteveldt, Atmosphere Research Group