Boeing pauses MAX 8 deliveries as investors wait for more news
Boeing Corp. will pause delivery of its new 737 MAX 8 aircraft as investigators try to piece together what happened to Ethiopian Airlines Flight 302 before it crashed, killing 157 people.
Aerospace industry analysts haven't sounded the sell-all warning, but they remain cautious as Boeing stock tumbled 11 percent this week. So far, the stock price has remained fairly steady as countries and airlines around the world grounded the MAX 8. Spirit Aerosystems, which manufactures some MAX 8 fuselage components in Tulsa and Kansas, fell about 4.25 percent.
Melius Research aerospace analyst Carter Copeland said the situation still is fluid. Investigators now must answer questions about what caused the crash in Ethiopia, along with another deadly MAX 8 crash in October. The U.S. Federal Aviation Administration said the two incidents shared enough similarities to ground future flights in the United States.
Boeing announced late Thursday it would stop delivering the aircraft, but production lines will remain open, at least for now.
"We continue to build 737 MAX airplanes, while assessing how the situation, including potential capacity constraints, will impact our production system," Boeing spokesman Paul Bergman said.
There are two things that could determine how investors value the companies, Copeland said: How deliveries of new 737 aircraft will be affected, and how much Boeing must pay to fix any problems. Costs also could include any civil lawsuits or fines.
The MAX 8 is one in a series of new 737 models Boeing is manufacturing. The company has 4,668 unfilled customer orders, which represents the bulk of potential income for Boeing's commercial aircraft division.
Copeland used historical cases to estimate Boeing's costs. The largest settlement in U.S. court history for an aviation accident was $150 million, while the cost of airlines replacing the MAX 8 with other planes could top $535 million, based on battery issues that grounded the Boeing 787 in 2013. He estimates that redesigning the aircraft based on crash analysis results could cost another $500,000 per aircraft delivered and currently in production.
"All in, this totals just shy of $1 billion in permanent costs and several billion of timing-related costs, depending on the scenario you want to assume," Copeland said. "This doesn't consider customer cancellations, but we would expect to see few if any in almost all scenarios."
Boeing lost more than $26 billion in market value after the incident, a fall that Copeland said is well below what the estimated losses suggest.
"But we think that isn't all that surprising given the considerable uncertainty encountered in this situation," he said.
Spirit Aerosystems referred questions to Boeing.