A lot has happened since the tragic Ethiopian Airlines crash last month. Boeing's (BA, Financial) 737-MAXÂ was first grounded in China, then by regulatory bodies the world over, despite the Federal Aviation Administration’s insistence the aircraft was safe. Soon after, the U.S. agency finally followed suit. Since then, the cause of both the Ethiopian crash and the Indonesian Lion Air crash from several months ago has been identified as a problem with the new maneuvering characteristics augmentation system's (MCAS) anti-stall mechanism.
Since then, both Boeing and the FAA have come under fire - the former has been accused of providing pilots switching over from the older 737 models with insufficient training, and the latter of punting on its responsibility to ensure the MAX was safe. Additionally, Boeing has been heavily criticized for its practice of charging airlines extra for essential safety features.
Initially, Boeing’s refrain had always been that the crashes could have been avoided by following the emergency checklists provided to pilots by the company. The crash report from the Ethiopian flight showed the pilots followed Boeing’s checklist, shutting off electricity and taking manual control of the aircraft. Regardless, it was not enough to regain control of the plane, which crashed less than 10 minutes after takeoff.
Following the release of the crash investigation report, Boeing has reversed its position. In a statement by CEO Dennis Muilenburg, the company said it is accepting full responsibility for both crashes and promised a software update that would rectify the problem with MCAS. Boeing obviously hopes to roll out the software update as soon as possible, and to return the grounded aircraft to the skies.
Investors hoping for a quick turnaround for Boeing stock may be in for some disappointment, however. In another blow to the company, China Aircraft Leasing Group (HKSE:01848, Financial) announced on Monday it would be suspending a $6 billion order for 100 MAX jets until they can be assured of the aircraft’s safety. Given that Chinese regulators were the first to ground the MAX, we can be sure they will want to conduct extensive independent assessments.
To make matters worse, Bank of America (BAC, Financial) analysts today downgraded the stock from buy to meutral, citing concerns that the problems with the MAX may be worse than previously anticipated. Shares of Boeing are down almost 5% on the day, erasing its post-crash gains. On top of all this, the company announced plans to cut production of the MAX by 20%, hardly a ringing endorsement for the aircraft.
Conclusion
The bottom line is Boeing is not in the clear just yet, as many of those who bought the post-crash dip are finding out. The company can talk up its MCAS updates all it wants, but it has clearly lost credibility in the eyes of both airlines and regulators outside of the U.S. It will take more than a software patch to undo the damage.
Disclosure: The author owns no stocks mentioned.
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