Troubles continue for Boeing

During the weekend, we have received word that the Transportation Department Inspector General has opened an investigation into the Federal Aviation Administration’s approving of the Boeing 737 Max planes. With this being the case, it has caused quite a bit of volatility in the stock, as the uncertainty going forward is going to be an overhang going forward.

A potential lack of training

Quite often, airplane manufacturers will put extra features into an existing airframe in order to save money, and essentially allow pilots to fly the airplane as it is “essentially the same.” However, with the 737 Max 8 and Max 9 there is something known as the MCAS system, which is designed to planes safer if takeoff is too steep. It will essentially readjust the speed of the planes and the attitude of the plane in general. That being the case, the idea is that if the takeoff is little too close to being in danger of stalling, the plane will correct itself.

Unfortunately, Boeing didn’t bother updating the manual with the proper information to explain to pilots that this system exists. For example, it’s not even noted on most versions of the 730 Max dashboard that the MCAS system is on or off. This was a money-saving feature, which has ended in tragedy as many of the pilots flying the 737 Max 8 and 9 had no idea the system even existed.

Troubles mount for the company

US pilots have been complaining about the Boeing 737 Max about the way it has performed in flight according to a federal database. These complaints have come to light recently, and in one of the complaints it was noted that the pilot reported that an autopilot anomaly occurred that sent the market into a descending situation, pushing the nose of the aircraft down. This is believed to be one of the reasons that the Lion Air and Ethiopian Air 737 Max’s crashed.

While the database noted this particular problem, it was also noted that the first officer disconnected the autopilot, and flight continued as per normal. The database doesn’t identify the pilots or what airlines they fly for, but there are two American carriers that fly the 737 Max 8, one of the planes in question, American Airlines and Southwest.

This plane matters

Unfortunately for Boeing, there are well over 5000 orders put in for the 737 Max 8, which is presently enjoying a backlog of over five years. This is one of the biggest orders and drivers of revenue for Boeing going forward, so a particular solution to this problem is going to be a major concern of the airline. Beyond that, it seems that this is more or less a software issue, so it could in theory be a reasonably simple fix, but only time will tell.

The effect on stock price

Boeing has lost over $100 per share, wiping out the gains from the gap at the end of January. However, the real question is where we go longer-term. It appears that the Max 8 problem will continue to be a major issue, but one would have to think that eventually Boeing will find a solution and implement it.

Ultimately, this will be a perception story more than anything else. Yes, it is a tragedy that there’s been a couple of accidents that have caused the deaths of so many. However, there have been situations like this in the past with a newer plane, which Boeing has always stepped in and taken care of.

Value hunters are almost likely licking their chops, as there should be a nice opportunity going forward. However, the headlines continue to look very poor so it may be a while before Boeing can recover, at least as far as stocks are concerned. That being said, Boeing has a long record of being one of the more profitable and safer companies in the world.