A new flaw has been found in the 737 MAX jets of Boeing by the US aviation regulator. This news not only brought down the shares of the company by 3 per cent, it also has potentially further delayed the return to air and service of the 737 Max jets. Further, there is also increased pressure now on the suppliers of Boeing.
Two fatal accidents, one in March this year and another just five months before that, forced he grounding of all 737 Max jets of the company all across the world a few months ago. That incident also sent shockwaves through the global aviation industry.
The single-aisle 737 plane is the most widely sold commercial aircraft of the world. The incident has put huge pressure on the future of Boeing itself because the model has orders for more than 5,000 of the crafts. It also has a backlog which is valued at almost $500 billion at list prices.
There can be significant financial impact aircraft parts suppliers as well as airlines in case of any further delays in the 737 Max returning into service once again, said Barclays analyst Christopher Keyworth. The global airline body has already warned that the grounding of the jets would cause a hit on their profits of 2019.
“We now anticipate a widespread ‘supplier reset’, with FY20E impact not yet factored into consensus,” Barclays analyst Christopher Keyworth wrote in a note. He downgraded the UK-based aero supplier Senior Plc to “equal weight”.
No detailed information about the latest flaw was supplied by the US Federal Aviation Administration. However, according to reports quoting sources familiar with the matter, the regulators discovered he flaw while conducting a simulator test last week.
None of the reports could make it clear whether the newly found flaw could be resolved with a software upgrade or whether a more complex hardware fix would be necessary to mitigate the issue.
“While we expect BA to eventually reinstate the MAX and return to targeted, normalized cash flows, we think the timeframe is unknowable,” Credit Suisse analyst Robert Spingarn said. “For now, we think investors should expect continued volatility as BA and the regulators work behind closed doors to ferret out any additional issues.”
Ever since the deadly crash of the Ethiopian Airline 737 MAX jet on March 10, there has been a total drop of 11 per cent in the value of the shares of Boeing till up to the close of trading on Wednesday. In contrast, during the same period, there had been a 6 per cent increase in the broader S&P 500 index.
Yet Boeing’s stock trades at 20.1 times forward earnings, a slight premium to its European rival Airbus SE, which trades at 18.6 times.
(Adapted form Reuters.com)