2. Boeing's back-to-back crashes could be a nightmare for the market
The crashes of 2 brand new Boeing 737 MAX 8 aircraft during the past 6 months, including the latest on Sunday outside Addis Ababa, Ethiopia, that killed all 157 aboard, present a major challenge for Boeing, Axios' Andrew Freedman writes.
Why it matters: The Chicago-based company has bet much of its future on the success of the Boeing 737 MAX series, which are the newest versions of the best-selling jet of all time. However, the stakes for Boeing couldn't be higher, as the loss of 2 brand new aircraft in 6 months has no precedent in modern aviation history.
The big picture: The aircraft is aimed at countering competition from Airbus for the lucrative single-aisle jet market. According to Boeing, the company has already notched more than 4,700 orders.
Context: The investigation into the Lion Air crash near Jakarta, Indonesia, on Oct. 29 has centered on an angle-of-attack sensor that juts out from the plane's fuselage near the nose.
- A preliminary investigation shows the sensor may have provided erroneous readings to the plane's flight control system.
- A flight computer system known as MCAS pushed the plane's nose forward to avert the stall.
A final cause of the crash has not yet been determined. However, in the wake of the crash, Boeing issued guidance to airlines about how to disable the MCAS system.
Backstory: In developing the 737 MAX 8, Boeing worked to minimize training costs for airlines. Pilots did not receive special training on the MCAS in particular.
- The Ethiopian Air crash bears initial, eerie similarities to the Lion Air disaster.
- While the cause of the latest accident won't be known for months, the possibility that the accident is also the result of the MCAS system has prompted China, Indonesia and Ethiopia, along with Ethiopian Airways and Cayman Airways, to temporarily ground the planes.
- Singapore and Australia announced they would also ground all 737 MAX airplanes in their countries.
The big picture: Boeing is the most influential stock in the oft-cited Dow Jones Industrial Average, which gives the heaviest weighting to the company with the highest share price, Courtenay points out.
- A continued sell-off in Boeing's shares — which accounted for about 25% of the Dow's rebound this year — would drag the index down with it.
- "The accidents could lead to near-term uncertainty with regards to utilization and deliveries ... If we assume there is no catch up and a 2-month pause, the impact would be $5.1B of revenue (5% of 2019 revenue)," notes Sheila Kahyaoglu, an analyst at Jefferies.
The bottom line: Right now, 3 U.S. airlines operate a 737 MAX: American, Southwest and United. Some international airlines, such as Norwegian Air and Icelandair, also are flying long-range routes across the Atlantic.