By The 737 MAX 9 is finally back in service, following a three-week grounding by the Federal Aviation Administration (FAA) due to a midair blowout incident involving an emergency door plug on an Alaska Air flight. While the delay may seem inconsequential, the repercussions for Boeing shares have been significant, introducing a wave of uncertainty for investors.
Investors Face Uncertainty
Uncertainty is the bane of investors’ existence. The first United passenger flight on a Boeing MAX 9 took place on Saturday, with United Airlines Flight 1525 departing from Newark to Las Vegas. This flight marked a milestone in the aircraft’s return to service post-grounding, following Alaska Air’s successful first MAX 9 flight on January 26th.
Minor Impact on Deliveries and Production
Despite the three-week setback, Boeing reassures that it will not significantly impact their aircraft deliveries for 2024, nor their overall production. Wall Street estimates suggest that airline customers affected by the grounding may receive compensation of around $60 million. This amount pales in comparison to analysts’ projected 2024 free cash flow of approximately $6 billion according to FactSet.
Boeing Stock Struggles
In contrast to the general market upswing, Boeing stock has taken a considerable hit since the grounding, dropping approximately 17%. Meanwhile, the S&P 500 and Nasdaq Composite indices have seen gains of about 4% and 6%, respectively, during the same period. This decline in stock value has wiped out an enormous $26 billion from Boeing’s market capitalization. The noticeable discrepancy between this figure and the $60 million in airline compensation reveals that investors’ concerns extend beyond mere financial losses.
Uncertainty Looms Large
The FAA has made it clear that Boeing’s plans to expand MAX production will not receive approval until the agency is satisfied with the aircraft manufacturer’s quality systems. Boeing aims to increase production from around 38 jets per month to over 50 jets per month within the next two years. Although it is possible for Boeing to achieve this goal even with heightened FAA oversight, investors remain skeptical due to the prevailing uncertainty. A slower production ramp-up could jeopardize free cash flow estimates for the years 2025 and 2026.
Certification Concerns
Furthermore, the FAA has yet to certify two versions of the MAX: the smaller MAX 7 and the larger MAX 10. The impact of the grounding on the certification process remains unclear, further adding to investors’ unease.
In summary, the return of the 737 MAX 9 to service may have reassured some airlines and passengers, but Boeing still faces significant challenges ahead. With uncertainty plaguing investors and crucial issues regarding production expansion and aircraft certification unresolved, the path to recovery remains shrouded in doubt.
A New Chapter for Boeing: Examining the MAX 10 and Airbus A321neo Competiton
According to Boeing’s commercial website, airlines have placed orders for a staggering 391 MAX 7s and 1,180 MAX 10s. In addition, there have been about 5,800 orders for the MAX 8 and approximately 440 orders for the MAX 9, which are the two certified MAX versions.
However, the recent incident involving the MAX 9 has left United Airlines management contemplating their MAX 10 orders. Unfortunately, the airline does not have many alternatives to choose from. Both Boeing and Airbus currently have a backlog of over ten years’ worth of single-aisle jet production. As a result, customer concerns further contribute to the existing uncertainty, which is undoubtedly not the news that Boeing investors hope to hear.
The MAX 10 is directly pitted against its competitor, the Airbus A321neo. The numbers speak for themselves: airlines have placed orders for nearly 6,200 A321neos, with approximately 1,250 deliveries already completed. As of now, the A321neo has experienced greater commercial success compared to the MAX 10.
In light of the problems faced by the MAX 9, coupled with FAA oversight and customer feedback, the debate surrounding whether Boeing should develop an entirely new MAX 10/A321-sized aircraft is being reignited. This potential solution for Boeing, however, comes at a significant cost. Designing and manufacturing a new plane is an arduous process that requires several years and billions of dollars.
Boeing is currently grappling with numerous questions and uncertainties. In the upcoming months, the primary goal for Boeing’s management is to address and alleviate these concerns. This can be achieved by ensuring that no further incidents occur. While this may prove challenging, Boeing must take every necessary step to minimize risks.
Once this objective is accomplished, Boeing must then embark on reversing the damage done over the past three weeks. Expanding 737 production is a priority, or at the very least, providing investors with a detailed explanation of the time required for such an expansion. Additionally, the certification process for the MAX 7 and MAX 10 must be completed, or again, investors should be provided with a realistic timeline. Only after these tasks have been accomplished should discussions about a new aircraft arise.
The road ahead may be challenging, but it is one that Boeing must navigate.
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