Boeing Shares Slide as Panel Failure Spooks Investors

Morningstar maintains its fair value estimate of $232 for shares in the aerospace giant, though investors can forgiven for being cautious

Ollie Smith 8 January, 2024 | 10:19AM
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Shares in aerospace giant Boeing (BA) fell nearly 9% on Monday in the US following the grounding of 171 Boeing 737 MAX-9 aircraft after a door panel flew out midflight on Friday.

US regulator the FAA ordered the temporary grounding of the planes after the incident on Alaska Airlines flight 1282 while safety inspections are ongoing. Boeing is expected to hold a whole company meeting on Tuesday to discuss safety.

The incident came just days after an Airbus A350 operating as Japan Air Lines flight 516 burst into flames after colliding with a coastguard plane last week.

Neither event caused loss of life, though it is thought deaths were avoided in the first incident because quick-thinking crew advised passengers to leave their belongings behind.

Morningstar industrials analyst Nicolas Owens says Boeing, which is listed on the New York Stock Exchange and is a major constituent of the Dow Jones index, is still working out flaws in its 737 and 787 planes. Investors could be forgiven for being cautious.

"Investors in Boeing and Airbus bank on the long-term durability and safety records of the companies’ products and the firms' ongoing obligation to adhere to the strictest product governance standards to meet safety requirements," he says.

"The fatal crashes of two Boeing 737 MAX-8 aircraft in 2018 and 2019 caused grave consequences for Boeing, including the grounding of the entire 737 MAX fleet by global aviation regulators for nearly two years, precisely because they called into question Boeing's ability to fulfill its product governance commitment.

"To this day, Boeing is working out flaws in its manufacturing processes for new 737 and 787 jets that came to light under intense scrutiny following the 737 MAX-8 crashes. The 737 MAX-7 and MAX-10 variants have not yet been certified as airworthy by the US Federal Aviation Administration (FAA), though we think they will eventually be certified."

On January 6, the FAA announced 171 Boeing MAX-9 jets of the type flown on Alaska Flight 1282 must be inspected before they can fly again.

"At this point, we do not believe those inspections or any revision to how the 737 MAX-9 fuselages are made by Spirit Aero Systems as a supplier to Boeing will have a material financial impact on Boeing or its customers, and our $232 fair value estimate is unchanged," Owens says. 

"However, the dramatic nature of the flaw will have the effect of once again calling Boeing’s product governance into question by customers, regulators, and the flying public."

In the US investors are now gearing up for a muted Monday after the Dow Jones Industrial Average showed Boeing under particular pressure. Futures on the index fell nearly 200 points, amid a sharp fall in China stocks and fears over draconian regulation.

This story is being updated as events progress today, Monday December 8

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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