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Boeing Stock Falls ~5% on Longer 737 MAX Grounding Report

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Boeing stock fell

Shares of the Boeing Company (BA) fell nearly 5% on May 13 after the Wall Street Journal reported that it would take longer for 737 MAX planes to fly again than earlier anticipated. The news agency had expected that Boeing would receive flying approval for its 737 MAX jets in midsummer. However, it now expects that the go-ahead may not be possible before late August.

Boeing’s 737 MAX series planes are facing worldwide groundings after two deadly accidents occurred in less than five months, killing all 346 people onboard. Air carriers around the world have also denied taking deliveries of the planes until these safety concerns are cleared.

The initial investigations of both crashes point to a fault in the flight control system, also known as the maneuvering characteristics augmentation system. Investigating agencies suspect that the anti-stall system might have automatically taken control during the Indonesia and Ethiopia crashes.

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Boeing claimed last month that it had fixed the software problem and had undertaken several successful tests. Citing sources familiar with the matter, the Wall Street Journal reported that Boeing might get initial approval from the Federal Aviation Administration by late May. However, it will take longer to get final approval from international regulators.

Airlines’ troubles could increase

A delay in Boeing’s receiving flying approval would increase the difficulties for airline operators, which have sizable 737 MAX fleets. Among the major US air carriers, Southwest Airlines (LUV), American Airlines (AAL), and United Airlines (UAL) have a combined number of 72 Boeing 737 MAX planes.

During the first quarter of 2019, Southwest Airlines and American Airlines registered the cancellations of 2,800 and 1,200 flights, respectively, due to the ongoing trouble with Boeing’s 737 MAX planes. Massive flight cancellations weighed on both companies’ first-quarter top and bottom line results. Although United Airlines didn’t reveal its total number of flight cancellations, it did reveal that using larger planes on 14 grounded 737 MAX jet routes was expected to increase its costs in the second quarter.

To gain exposure to the airline industry, you can invest in the US Global Jets ETF (JETS), which tracks passenger airlines, cargo plane manufacturers, airports, and terminal services companies. The ETF has returned 5.6% in the year so far, underperforming the Dow Jones Industrial Average’s gain of 8.6%.

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