Boeing’s escalating 737 MAX crisis affecting stocks
The pressure on Boeing mounted on Monday as freshly-surfaced documents raised doubts about the ability of the company to restore a top-selling plane to service soon and magnified calls for a management shake-up.
Shares crashed for the second day in a row after the Federal Aviation Administration sharply criticized Boeing on Friday for withholding key documents in probes for months after two crashes that killed 346 people.
Seven months after its top-selling jet was grounded, the FAA criticism added to the works facing Boeing, spurring Wall Street analysts to downgrade the company and increasing speculation that it might be forced to stop production on the jet for a temporary period.
The Board of Directors of Boeing is expected to finish a two-day meeting later on Monday ahead of the company’s announcement of results this week and a meeting at the end of the month.
Boeing removed Ceo Dennis Muilenburg of his title as Chairman earlier this month, sparking speculation that he might soon be removed from the firm.
The newly released documents raise questions as to what Boeing knew about a critical flight handling system involved in flight crashes involving Lion Air and Ethiopian Airlines and whether the company was coming up with regulators.
UBS downgraded Boeing, cutting its target price by US$ 95 to US$ 375 per share, citing “potential slippage” in the 737 MAX schedule that has been grounded since mid-March. The problem also “heightens the risk for insufficient reporting, which potentially puts more money/trust & time at stake.” Further delay could “very well mean” mean a manufacturing pause on the 737 MAX, UBS said.
Boeing has previously discussed a production pause as feasible but not a probable course of action which could potentially impact employees and suppliers.
Boeing’s stock was down 3.8 per cent at US$ 331.06, widening declines from the 6.8 per cent fall on Friday.
CHANGE IN BOEING CULTURE NEEDED?
The latest twists in the MAX crisis stem from an instant message conversation on the performance of the Maneuvering Characteristics Augmentation System during a simulation involving Boeing’s chief technical pilot for the 737, Mark Forkner.
The MCAS is a flight control system that is believed to be at the root of two MAX accidents, contributing to the grounding of the aircraft after mid-March.
In both accidents, according to initial accident reports, the MCAS pointed the aircraft dramatically downward based on an inaccurate sensor reading, hampering the pilots ‘ ability to control the plane after takeoff.
Forkner defines the MCAS unit as “flying fast in the simulator” at lower speeds in the email to a friend, noting that the quality was “egregious.” Forkner had not reported this MCAS problem to the FAA, “and I lied to the regulators (unknowingly),” he said.
Forkner had sought permission from the FAA eight months earlier not to mention the MCAS in the flight manuals.
The FAA, claiming that the MCAS program would only work in rare cases during testing and did not pose a risk to aviation safety, gave the green light.
Forkner’s lawyer, David Gerger, said the conversation concerned the MCAS simulator that “was not reading right” and that Forkner “thought the real plane was safe.” Boeing said in his latest statement that “we understand and regret the concern” generated by Forkner’s messages, which were involved in the development of training and MAX manuals.
Boeing said that he had not been able to speak directly to Forkner, but pointed to his explanation that his comments concerned a “simulator program that was not working properly and was still undergoing testing.” “Boeing informed the FAA during the regulatory process of the expansion of the MCAS to low speeds, including by briefing the FAA and international regulators on multiple occasions.
In February, Boeing had sent the messages to the Justice Department, according to a person close to the matter.
UBS said “excellent explanations” could be given as to why the information was not shared with the FAA, including the possibility that the Department of Justice had instructed Boeing not to share it.
“Yet these new disclosures likely hit a nerve at the regulator,” UBS said, adding that “global regulators now have an even larger reason to delay their return to service decisions.” Richard Aboulafia, Teal Group’s vice president, a market analysis firm, said the messages raise questions about Boeing’s board.
“Does the board hear about the messages? If so, why didn’t they say anything?” Aboulafia called for the company’s shake-up and the ouster of Muilenburg.
“They need someone with a broader strategic view of transforming the company,” Aboulafia said. “They need a cultural transformation.”