Boeing has lost $28 billion in market value
Boeing (BA) stock had been rallying since the beginning of this year on growing optimism over its increasing revenues and cash flows, huge order backlog, and increased production and pricing of its 737 series planes. As of March 8, the stock’s YTD return was 31%. However, after the Ethiopian Airlines crash on March 10, Boeing stock witnessed a massive sell-off. This week so far, the airplane manufacturer (XLI) has lost ~12%, or ~$28 billion, of its market value.
The latest sell-off has eroded Boeing’s YTD gain to 15.8%. The air defense contractor was the highest gainer among Dow 30 stocks until last week. However, the recent plunge in the stock price has moved it to tenth place. IBM (IBM), which has gained 22.1% YTD, has now become the top performer among Dow 30 stocks. Cisco (CSCO) and United Technologies (UTX) are in the second and third spots. These stocks have gained 21.7% and 19.2%, respectively, during the same timeframe.
The problems for Boeing could worsen in the near term, as the company is facing the worldwide grounding of its 737 MAX planes following the two fatal 737 MAX crashes in five months. Various analysts believe that it will take Boeing over three months to solve the issues.
The worldwide grounding of its 737 MAX jets could cost Boeing billions of dollars. Citing estimates of Melius Research and Jefferies, CNN Business reported that grounding costs might range between $1 billion and $5 billion.
Further, the company may have to cough up millions of dollars as compensation for the families of deceased passengers in the Ethiopian Airlines crash. Also, some airline operators like Norwegian Air are seeking compensation for temporarily suspending their 737 MAX planes.
However, a few billion dollars in costs and compensation shouldn’t be too much of a bother for a company like Boeing, which has an annual turnover of over $100 billion. Nonetheless, the more significant challenge for the company would be to retain its customers for its fast-selling 737 MAX series aircraft.
Currently, the company has over 4,600 backlog orders for 737 MAX series planes from more than 100 customers worldwide, totaling over $550 billion. However, the two fatal crashes have posed a reputational risk for Boeing.
After the Ethiopia crash, many travelers tried to avoid flying on 737 MAX planes. If the passenger backlash extends for a longer period, airline operators may halt their purchases from Boeing and switch to its arch rival, Airbus.