Boeing’s stock plunged over 8% on Monday morning after the Federal Aviation Administration (FAA) ordered the grounding of all 737 MAX airplanes, following two fatal crashes within the last year. This news sent shockwaves through the aviation industry and wider stock markets.
FAA Grounds Entire 737 MAX Fleet
On Monday January 8th, the FAA issued an emergency order to immediately ground all 737 MAX airplanes across the US, citing evidence from the ongoing investigation into the Lion Air and Ethiopian Airlines crashes.
“The FAA determined through satellite tracking data, evidence from the Lion Air crash site, and information from the Ethiopian Airlines flight 302 crash site that there were similarities between the two accidents that warrant further investigation of the aircraft,” said the FAA in a statement.
This grounding will affect 72 aircraft operated by American carriers. Boeing confirmed they will fully cooperate with regulators to determine next steps and work towards restoring confidence in the 737 MAX.
While Aviation authorities across Europe, China, Canada and other countries had already banned the 737 MAX from their airspace in recent days, the US decision is seen as a major blow for Boeing.
Boeing Stock Plummets
Boeing shares plunged over 8% in pre-market trading following the FAA order, dragging down the Dow Jones Industrial Average over 200 points. The decline wiped out over $12 billion in market value for the aircraft maker.
Other airline stocks like American Airlines, Southwest Airlines and Alaska Air Group also sank on fears that the groundings would lead to flight cancellations, loss of revenue and higher costs.
Stock Declines on January 8, 2024
| Company | % Decline |
|-|-|
| Boeing | -8.15% |
| Alaska Air Group | -3.12% |
| Southwest Airlines | -1.26% |
| American Airlines | -0.98% |
Boeing had continued to affirm the airworthiness of the 737 MAX in recent days, even as countries grounded the planes one after another. Analysts say this loss of confidence from global regulators and the FAA suspension will significantly impact Boeing’s reputation, future orders and earnings.
What Led to the Groundings?
Concerns around the latest 737 model began mounting after a Lion Air 737 MAX 8 crashed minutes after takeoff in Indonesia last October, killing all 189 aboard.
Investigators suspect that crash involved erroneous sensor data triggering an automated flight control system called MCAS to push the nose of the plane downward. Boeing then issued guidance to pilots about how to disable MCAS in such a situation.
But on March 10th, tragedy struck again when an Ethiopian Airlines 737 MAX 8 crashed shortly after departing Addis Ababa, bearings similarities to the Lion Air accident. 157 lives were lost.
While the causes for both crashes are still under investigation, the Ethiopian crash intensified scrutiny around the aircraft and led country after country to bar the 737 MAX from flying in their airspace. With the US ban, the planes are now grounded globally.
What Next for Boeing and Airlines?
With the entire 737 MAX series now out of action, airlines face major disruptions, flight cancellations and costs in re-assigning other aircraft.
Southwest and American Airlines have the largest 737 MAX fleets in the US with 34 and 24 aircraft respectively. Both carriers, along with United Airlines, say they are working to rebook stranded passengers. Still, this will negatively impact earnings in the quarter ahead.
As for Boeing, analysts say it faces rising costs from compensating airlines, building inventory and possible expenses related to any required software/hardware updates to fix issues with the 737 MAX. This turmoil also threatens Boeing’s longstanding duopoly with Airbus.
Most experts expect Boeing will develop a package of software upgrades and training to satisfy regulators, though this process could take weeks or months. It remains unclear if the 737 MAX issues might run deeper, needing hardware modifications as well. With over 5,000 orders placed for this aircraft by airlines globally, Boeing has major financial incentive to rectify any problems quickly.
In meantime however, the stock plunge and reputational damage will linger. This ongoing regulatory scrutiny represents the biggest crisis for Boeing in decades, threatening profits, future orders and passenger confidence. Competitor Airbus could exploit this window to promote their rival A320 model.
So Monday’s FAA order represents just the start of a challenging period ahead for Boeing and its airline customers. With world attention laser focused on the 737 MAX, investors will watch anxiously to see how rapidly Boeing can deliver solutions and regain trust in their fastest selling plane ever.
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