At the start of the year, Boeing (BA) stock was riding high on growing optimism over its revenue and cash flow growth. However, since the Ethiopian Airlines crash on March 10, the stock has seen a massive sell-off. Since then, the airplane manufacturer has lost 12.6%, ~$29 billion of its market value.
The sell-off eroded most of the air defense contractor’s earlier gains. As of March 8, the stock had gained ~31% YTD. However, following the Ethiopia air crash, its YTD gain has come down to 14.5%.
The stock’s YTD return is also lower than the gains of the iShares U.S. Aerospace & Defense ETF (ITA), which invests in companies that are engaged in manufacturing, assembling, and distribution of aircraft and defense equipment. The ETF has gained 23.5% this year so far.
Moreover, until March 8, Boeing was the highest gainer among the Dow 30 stocks. However, following the Ethiopia crash, it has slipped to the 15th position. With a YTD gain of 31.4%, Microsoft (MSFT) is the top performer among Dow 30 components. Visa (V) and Cisco (CSCO) hold the second and third positions with YTD returns of 29.8% and 29.4%, respectively.
737 MAX crisis
Boeing has been in troubled water since the Ethiopian Airlines crash, as that was the second time in less than five months that its 737 MAX plane was involved in a deadly accident. The two fatal accidents killed 346 people.
The initial investigation reports suggested a software glitch in Boeing 737 MAX’s flight control system. Therefore, regulators around the world banned the planes from flying. Due to the worldwide grounding of MAX planes, air carriers around the world have denied taking delivery of the aircraft until safety concerns are cleared.
The MAX series of jets account for ~70% of Boeing’s total aircraft orders and contribute one-third of its overall operating profit. Currently, Boeing has over 4,600 backlog orders worth over $400 billion for its 737 Max series aircraft.
Delivery cancellations are hurting the airplane manufacturer’s overall financial results. Boeing reported a YoY decline of 2%, 13%, and 21% in its first-quarter revenue, EPS, and operating income, respectively.