Prior to the announcement of a second crash involving the new Boeing 737 Max jet the Boeing share price was just over $440. In the aftermath of the second fatal crash, with circumstances said to replicate a separate crash last October, the shares initially fell to $420 and then down to $360. While we still await publication of the Ethiopia crash report and the Indonesia crash report, in many ways the movement of Boeing shares reflects general market reactions.
Damage to Boeing reputation
While the Boeing share price has since bounced to around $390 there are still concerns regarding the similarities between the two crashes. The loss of life has been headline news across the world amidst concerned about the airplane’s anti-stall system and various sensors. Interestingly, the CEO of Boeing has been in the press today with a heartfelt apology for the loss of life which he seems to be blaming on sensor issues. It is unusual to see a company effectively taking responsibility at such an early stage prior to official regulatory reports being released.
Boeing shares bounce strongly
The initial fall in the Boeing share price was around 20% but this has since recovered to a net drop of around 10%. As we all know, stock markets and investors fear uncertainty more than even a worst-case scenario. As a consequence, many may find it slightly perverse that the share price has rallied just as the crash reports are making their way into the public domain. However, this is the way in which stock markets and investors work, until they know the reasons (and the consequences) for such incidents they tend to price assets on a worst-case scenario.
It seems inevitable that the company will need to make arrangements to pay compensation to the families of those who died. While not officially accepting liability for the crashes, today’s comments from the head of Boeing are perhaps as close as you will ever get without official guidance from the government/regulators.
The future of Boeing shares
It will be interesting to see how the Boeing share price performs in the coming weeks and months as more details about the reports leak into the public domain, prior to official publication. There seems to be a general acceptance that faults on the airplane prevented pilots from taking evasive action. It is impossible to say with any certainty when or if the Boeing 737 Max jet will fly again. On balance this is unlikely to be the last we see of the new airplane but there will need to be a serious overhaul. Perhaps even a name change to distance future planes from the Boeing 737?
There has been damage to Boing’s reputation but in reality crashes and accidents are perhaps more commonplace in the airline industry than many would like us to believe. However, it has to be said that Boeing management have stepped forward to accept full responsibility at the earliest possible opportunity.
Summary
It was only after the second crash that investors, analysts and regulators began to join the dots connecting the Ethiopia and Indonesia crashes. There is still concern that the Boeing 737 Max jet went into commercial use with what appears to be a fundamental flaw in the software/sensors. While short-term there has been a hit on Boeing’s reputation, longer term this type of incident is unfortunately not uncommon in the industry.