Boeing plane crashes cause the company's stock to take a hit.
Shock waves from the crash of an Ethiopian Airlines jet on March 10, which led to a global grounding of Boeing 737 Max 8 planes in all major key markets, continue to spread.
The potential nexus between two air crashes with no survivors—Ethiopian Airlines on March 10 and Lion Air last October in Indonesia—and questions around the plane’s approval process have already dented Boeing’s stock and stoked passenger mistrust. [See our cover story, p. 10] Little more than a week after the most recent incident, Garuda Indonesia announced that it was canceling its contract with Boeing to purchase 49 Max 8 planes, a deal valued at around $5 billion, because prospective passengers were asking about the plane. Several airlines had to cancel flights—notably Southwest, with the biggest Max series fleet, and American, which together were cancelling more than 200 flights per day by late March. Some Max 8 planes are being temporarily replaced by leased planes, at a cost of around $250,000 per plane, per month.
Still, while many 737 Max jets have been ordered, very few have been delivered, leading Jamie Baker, analyst at J.P. Morgan, to call the groundings “largely immaterial”—at least to most North American airlines. Prolonged groundings, Baker believes, may even drive further consolidation in the industry.
Boeing’s story highlights the industry’s dramatic growth in recent years, connected to a rise in leisure and business travel and regulatory reforms such as the US-Europe “open skies” policy. Analysts, however, warn that rapid growth has led to overcrowded skies as well as additional risks—such as lax safety inspections and training. According to the Aviation Safety Network, 2018 saw a 900% increase in commercial airliner accidents, with 15 fatal events.
The fallout from the Boeing incidents includes fresh skepticism about the US Federal Aviation Administration (FAA) which had allowed Boeing to self-certify its planes—despite three separate critical reports from the Department of Transportation’s inspector general, including one critique directed specifically at the office that oversaw Boeing certifications. The agency did not note any special training that pilots might need for new systems in the Max 8, particularly the “maneuvering characteristics augmentation system,” or MCAS, the anti-stall system that seems to have been at the center of both crashes. The FAA had earlier defended its outsourcing, citing lack of resources and the “ever-expanding magnitude of the US aerospace industry.”
While financial instruments such as the SPDR S&P Aerospace and Defense ETF have suffered along with Boeing stock since the latest Max 8 crash, airlines have been performing well so far this year. Boeing stock fell 16% in the aftermath of the crash, to hover around $370 at the end of March. Yet it was still up nearly 15% for the year, and well above where it was trading at the same time in 2017 ($180) or in 2016 ($131), when it began to soar.