Echler Solomon Feng
Mar 22, 2019

Another Boeing Bites the Dust

After two fatal crashes in just five months, Boeing can only look to a future that is on a downward trajectory as the reliability and safety of one of its crown jewels are in serious question. This, as it may have to suspend deliveries of its 737 Max jets until a full investigation announces they are in fact airworthy. In addition, and compounding Boeing’s worries upon the global grounding of its 737 Max aircraft; American regulators are succumbing to mounting pressure that the planes have “systemic performance issues” that need to be resolved. The US decision was the needed determination that has also prompted regulators and airlines in some 42 countries to follow suit.

One vitriolic & cynical aviation commentator wrote: “The 737 Max 8 is a 40-year-old airframe with suicidal aerodynamics, the weight load too high and the engines too powerful. The only software upgrade this jet needs is a shipping label sticker on it that says "DOA" and the address of the "boneyard" in Arizona where the three 9/11 drone jets came from. No software upgrade will repeal the Law of Gravity, the last remaining law the corrupt federal government follows.”

But if you are thinking that the surmounting loss for Boeing could spell opportunity for Airbus, this may not necessarily be the case. The US$215 Billion Aerospace giant may have to halt production and delivery of 737’s but this does not necessarily imply that airlines can switch orders to Airbus. Airbus order books appear full, although the recently announced termination of the superjumbo A380 may alter this perception. The aviation industry awaits clarity on this as do we in order to state categorically that Airbus is a BUY. What's Boeing's loss is Airbus’s gain?

Currently, Boeing’s order book includes 4,600 Max 8’s whose future is ‘suspended’ after the Ethiopian tragedy. If the worst-case scenario includes total scrapping of that model, Airbus is not ready to accommodate the overwhelming demand that would follow. Besides. Its A320neo production is already running at full capacity with 3,600 orders on its books. Airbus is already churning out 50 units a month but even at that rate, it will take 6 to 7 years to meet with demand. Even before the Ethiopian tragedy, the aeronautic duopoly was already fully booked with orders and with production lines operating at peak capacities.

Expanding production would take years and billions of dollars of investments for Airbus to accommodate a spillover of demand. By that time, Boeing would have already ironed out whatever issues they are presently confronted with, as they have done in the past.

This is not the first time Boeing has been plagued with performance issues on their planes. Sometime in late 1965 and early 1966, four new Boeing 727 jets crashed. Three of these crashes happened while the planes were attempting to land at US airports, and two of them happened within three days of each other in November 1965. As history has shown, nervousness over these 737’s will fade in time but Boeing has to continuously reassure the public that its planes are safe and that software updates are sound enough to defy the laws of physics.

Only until we get a scientific and sound explanation from the investigations, we remain anxious about the immediate and medium-term for Boeing. We recommend not touching the stock until we are assured that those 737’s are ready and safe for takeoff. We expect Boeing shares to remain under pressure, as more information will become available over the next few weeks and months about the extent of the financial cost to the company and it’s bottom-line. These expanding regulatory probes will continue to hammer the stock.

For now, fasten your seat belts as the company’s flight is set for one bumpy ride.