The recent grounding of Boeings MAX 9 aircraft following an incident with Alaska Airlines has raised concerns among investors. This move by the Federal Aviation Administration (FAA) has had a negative impact on Boeing stock (BA), as well as that of Spirit AeroSystems (SPR), which is responsible for the initial door plug installation. However, while the short-term financial impact may be limited, there are some uncertainties looming. This article examines the growth potential and investment value of Boeing stock amidst these developments.
Understanding the Impact:
The grounding of MAX 9 has prompted Alaska Airlines and United Airlines to suspend services of the aircraft. While the direct financial impact on Boeing and Spirit AeroSystems is expected to be limited, with short inspection and rework times, the incident has raised concerns among investors. Analysts estimate that Copa and United may experience a negative impact on Q124 EPS, although this is likely to be overshadowed by other factors. Alaska Airlines, on the other hand, may face a sentiment overhang until the NTSB investigation findings are released. Alaska Airlines has 65 MAX 9 jets in its fleet, while United has 79. The grounding of the MAX 9 aircraft may present a more pronounced challenge for Copa Holdings (CPA), a Latin American airline, due to its high-season demand. Copa has 20 MAX 9 jets in its fleet
The Positive Outlook for Boeing:
Despite the grounding of MAX 9 aircraft, analysts at RBC remain buyers of Boeing stock. The fact that the FAA is focusing on the Alaska event and not the broader MAX program is seen as a positive for Boeing. RBC believes that while the negative impact may be more pronounced for Spirit AeroSystems due to recent stock strength, the incident does not alter their positive view on Boeing overall.A Manufacturing Issue, Not a Broader Design Problem:
Analysts at Citigroup suggest that the incident points to a manufacturing issue with the particular aircraft involved, rather than a broader design problem with the MAX 9. The newness of the aircraft, combined with the fact that the "9 variant" has been flying with plugged doors since the late 1990s, and no similar events occurring since the MAXs introduction in 2015, support this viewpoint. Citi does not expect the issue to impact other variants of the 737.
Long-Term Outlook and Financial Exposure:
Analysts are confident that the recent incident will not significantly affect Boeings long-term story. The financial exposure for Boeing is expected to be immaterial in the context of the companys longer-term targets. Additionally, Akasa Air has completed a thorough inspection of its entire fleet of Boeing 737 MAX aircraft and reported no adverse findings, further supporting the notion of a specific manufacturing issue rather than a broader problem.
Price ActionBA- Shares of BA are down -8% in reaction to the news. The stock is attempting to hold support at its 50-sma ($227).
CPA- The stock is down -1.46% following the news. Shares were rejected at the 20-sma ($103) and are holding ground just above the key $100-psyche level. ALK- The stock is down -4.45%. It is fighting to hold its 50-sma ($36.40). It needs to recover this ground or face further selling pressure.
UAL- Another name battling its 20-sma ($42). This recently held the 50-sma. The attempt to bounce back will be pressured by the weekend's news.
Conclusion:
The temporary grounding of Boeings MAX 9 aircraft has undoubtedly affected investor confidence in the company. However, analysts maintain a positive long-term outlook for Boeings financial performance. While the incident raises some concerns, the focus on the Alaska event and the absence of similar incidents in the past support the belief that this is a manufacturing issue rather than a broader design problem. Investors are advised to closely monitor the findings of the NTSB investigation and review future developments before making any investment decisions regarding Boeing stock.
$BA(BA)