Aircraft maker shares are down nearly 12 percent as more countries move to ground its 737 Max planes
By Rachel Layne
March 12,2019 / 2:58 PM
/ MoneyWatch
Boeing shares extended their slide Tuesday as a growing list of countries move to ground the aircraft maker’s 737 Max model jets after the crash of an Ethiopian Airlines flight on Sunday killed 157 people.
Boeing’s stock price has fallen nearly 12 percent since the accident, erasing roughly $28 billion in value amid concerns the accident could have links to the October 2018 crash of a 737 Max 8 operated by Indonesia’s Lion Air that killed 189.
The worst-case scenario for Boeing, in which the 737 Max 8 is fully grounded and the company is forced to halt deliveries of the plane, could cost the aviation giant more than $5 billion, the Washington Post reported, citing analysts at Jefferies.
Although experts warn that it’s too early to know what caused the Ethiopian Airlines crash, both crashes occurred shortly after takeoff, suggesting a possible connection. Other concerns are focusing on new software used by the Max 8 that’s designed to automatically adjust a plane’s flight angles when they’re too steep.
« Reports are early, but the similarities between the Lion Air and (now) Ethiopian 737 Max plane crashes are hard to ignore, » UBS analyst Myles Walton told clients in a note after a decline in Boeing shares following the latest incident.
The Boeing 737 is the best-selling aircraft in history — the Max is its newest version, with more fuel-efficient engines. It is also Boeing’s most important aircraft type, generating almost one-third of the airline maker’s operating profit, according to Bloomberg.
Aircraft manufacturers need that cash not only to satisfy investors and boost profit, but also to fund the development of newer models. Aircraft can be in service for decades, so any glitches or major problems can have ramifications for years to come.
Boeing delivered 806 aircraft last year,256 of them Max models. Boeing executives said in a recent earnings call that about 90 percent of the 737 models delivered in 2019 are expected to be Max versions.
Boeing is a top defense contractor, but its commercial airplane division is its biggest business, making up nearly $61 billion of its $101 billion in total revenue last year. The 737 Max models represent about two-thirds of Boeing’s future deliveries and account for roughly 40 percent of its profit.
Boeing shares fell as much as 11 percent in morning trade before ending the day down just over 5 percent.
Airlines like Southwest, with a fleet that’s nearly all some version of 737 models, are drawn to the Max because it’s drastically more efficient than existing models and shaves off crucial costs, like fuel. Southwest noted Monday that customers are asking if their flight will be on a 737 Max 8, while saying in a tweet that it remains « confident in the Safety of our fleet. »
As of Dec. 31, Southwest had 750 Boeing 737 models in its fleet, including 31 Max 8s. American had 24 Max 8s. United said it has 14 Max 9 planes, which is a larger version of the same aircraft (Boeing provides a full list of orders and deliveries on its website.)
Southwest said is keeping in close contact with Boeing as information about the Ethiopia Air crash comes in.
We’re hearing from Customers asking if their flight will be operated by the Boeing 737 MAX 8.
