Boeing’s 737 MAX 9 jets have started flying again after the Alaska Airlines scare on January 5, but the incident is expected to weigh on the aviation giant’s finances for the foreseeable future.
Both Alaska and United Airlines resumed MAX 9 flights over the weekend after a three-week grounding following a panel explosion that necessitated an emergency landing. The incident has strained control of Boeing and CEO David Calhoun.
Investors will get an initial assessment of the financial implications on Wednesday, when Boeing reports fourth-quarter results.
In addition to reporting another annual loss, Boeing is expected to pull back on commercial plane production targets that were central to its medium-term financial outlook, which includes promises of strong profitability in 2025 and 2026.
The Alaska Airlines episode is also expected to increase costs, including compensation for airlines. However, those figures may not appear until later in 2024, analysts said.
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Boeing shares have fallen nearly 18 percent after the troubled Alaska Airlines flight, as investors bet on a tougher regulatory environment slowing plane deliveries.
Analysts at Bank of America downgraded Boeing this week, concluding that “substantially increased regulatory scrutiny” from the Federal Aviation Administration (FAA) would lead to a “forced slowdown.”
The incident also added to questions about Boeing’s leadership in light of the company’s intense criticism from airline customers.
Calhoun spent part of last week on Capitol Hill, meeting with lawmakers who have also promised public hearings.
“They’re going to have to show change,” said Jeff Guzetti, former head of the FAA’s research division.
Guzzetti said he expects changes in management, but added, “I don’t know what that looks like or who.”
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The Alaska Airlines incident represents the most serious operational problem for Boeing since two crashes of 737 MAX 8 planes in 2018 and 2019 resulted in 346 deaths and long groundings.
Although there were no serious injuries in the latest incident, National Transportation Safety Board officials said the episode could have been catastrophic.
The agency is expected to update the investigation next week, an NTSB spokesman said Friday.
The FAA strongly criticized Boeing’s quality assurances as “unacceptable” for not identifying manufacturing problems before delivery to customers.
Analysts do not expect Boeing to reveal findings about the root causes of the January incident when it reports earnings on Wednesday, but they are hoping for more details about the company’s operational changes.
Morningstar analyst Nicolas Owens is looking for “any rudimentary information about what they’re going to do differently,” he said in an interview.
“They haven’t dug deep enough into how disrupted their production process has become. And they need to dig deeper,” he told AFP.
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Production targets are questionable
MAX 9 planes are starting to return to service after the FAA last week cleared the jets following detailed inspections.
However, as part of its MAX 9 announcement, the FAA froze Boeing’s production level for the model until the company demonstrates improvement.
That disruption likely derails Boeing’s plans to increase MAX production from its goal of about 38 a month in 2023 to 50 a month in 2025 or 2026 — a push it had hoped would result in $10 billion in free cash flow.
Analysts also noted that higher production levels had received early FAA certification — which may now be delayed — of the 737 MAX 7 and 737 MAX 10.
“Boeing will have trouble expediting deliveries of its new aircraft,” said Guzzetti, who warned of a “loss of profits” from the restrictions.
Christopher Raite, senior analyst at Third Bridge, said Boeing’s plunge in the stock market reflected investor “pessimism” about its ability to ramp up MAX production.
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“We want to hear what they plan to produce, at what pace and when they plan to get there,” Raite said. “Will they move that 2025 target?”
The crisis facing Boeing has fueled speculation about a change in leadership, possibly including Calhoun.
Airline executives in recent weeks have sharply criticized Boeing and demanded tighter oversight, while not demanding changes in leadership.
A board member since 2009, Calhoun ascended to the top job after Dennis Muilenburg was ousted in December 2019 in the wake of two fatal MAX crashes.
In 2021, Boeing raised the retirement age for its CEOs to 70, potentially allowing Calhoun to stay on until 2028. In December, the company named Stephanie Pope as CEO, a move seen as a possible successor .
However, Morningstar’s Owens does not expect a management change, at least while Boeing is still in “crisis mode.”
Source: AFP