The recent accident involving an Alaska Air Group 737 MAX 9 has sparked an overwhelming amount of news, theories, and data points about Boeing's production and quality-management systems. However, it is important to note that not all of the information being circulated is accurate.
Investors are finding it necessary to keep up with the continuous flow of news, including the recent announcement that regulators will be strengthening their oversight of Boeing. In order to gain a comprehensive understanding, it is crucial to consider the context surrounding these developments.
Thursday proved to be a significant day for Boeing. Senator Maria Cantwell, Chair of the Senate Committee on Commerce, Science, and Transportation, raised concerns about the Federal Aviation Administration's oversight of Boeing manufacturing and requested detailed information on the matter. Cantwell also expressed criticism regarding Boeing's revised quality process, which resulted in the layoff of 900 quality inspectors in recent years.
Due to the MAX grounding and the impact of the pandemic, Boeing has experienced significant changes. Layoffs have occurred, but it is important to recognize that Covid-19 played a major role in these workforce reductions. Before the pandemic, Boeing successfully shipped approximately 800 jets. In 2022, despite challenges, Boeing managed to increase its plane deliveries to 528 from 480 in the previous year.
Despite these ongoing developments, Boeing has not provided any comment regarding its inspection practices or the number of inspectors per plane. Additionally, Cantwell's office has not yet responded to inquiries about the 900 quality inspectors.
In a more immediate response, the FAA announced on Friday that it would be intensifying its oversight of Boeing's production.
As concerns surrounding Boeing continue to rise, it is evident that increased oversight measures are necessary to ensure safety and restore trust in the company's operations.
Boeing Provides Support for FAA Announcement
Boeing has expressed its support for the recent announcement made by the FAA regarding actions to enhance quality and safety. The company is committed to taking necessary steps throughout its production system in line with these measures.
FAA Investigation Raises Questions for Boeing
The FAA has revealed that it is currently conducting an investigation into whether the 737 MAX 9 aircraft involved in the recent accident adhered to Boeing's design specifications. This investigation is of significant importance for Boeing and may potentially impact the timeline for the aircraft's return to service.
Accordingly, Jefferies analyst Shelia Kahyaoglu has revised her projections on the grounding period for MAX 9 jets. While initially estimating a two-week grounding, Kahyaoglu now acknowledges that the timeframe could be either sooner or longer.
As of now, there are approximately 200 MAX 9 jets operating out of a total of 1,400 MAX jets globally. This limited number minimizes the financial repercussions for Boeing. Experts estimate that airlines unable to utilize their planes are facing compensation costs of approximately $2 million to $3 million per day.
These figures can serve as a guideline for investors looking to assess the impact on Boeing's stock. Furthermore, considering that Boeing is expected to generate around $6 billion in free cash flow by 2026 and deliver 700 planes, the grounding's swift resolution could result in about 30 units of MAX 9 jet deliveries in 2024.
Shedding Light on Manufacturing and Design Concerns
BofA Securities analyst Ronald Epstein, who holds a PhD in engineering, suggests that the recent blowout incident may have been caused by an assembly issue. However, it is crucial to await the completion of all investigations before drawing any definitive conclusions.
Investors should consider this observation when evaluating various factors related to the incident, such as cockpit warning lights, Wi-Fi installations, quality inspectors, and loose bolts. These topics have gained attention in the aftermath of the blowout.
Boeing Stock Performance and Year-to-Date Analysis
In late trading on Friday, Boeing's stock experienced a decline of 2.3%, while the S&P 500 remained stable, and the Nasdaq Composite saw a 0.3% increase. Notably, Boeing shares have depreciated by around 17% year to date.