Boeing Shares Under Pressure as Board Mulls Suspending Production of Troubled 737 Max

Shares of Boeing (NYSE:BA) were struggling to recover from a sharp decline in pre-market trading on December 16. The company’s Board of Directors was in its second day of meetings to determine the company’s next course of action regarding its beleaguered 737 Max jetliner.

One of the options being considered was to suspend the production of the 737 Max indefinitely. This would be a major blow to Boeing as well as its suppliers. As recently as a month ago, the company was announcing that the company could be fulfilling orders for the 737 Max before the end of 2019.

One of the broader concerns about a production cut with the 737 Max is its effect on suppliers. For example, Spirit AeroSystems Holdings Inc (NYSE:SPR) is Boeing’s largest supplier. Spirit makes the fuselage for the 737 Max among other parts.

Thus far, suppliers like Spirit have not felt the effects of the slowdown in production. They have continued to sell parts for the jet in excess of the number of planes being built. That would come to an end were Boeing to suspend production completely. Boeing is saying they may ask some suppliers to continue production even during a suspension to prevent disruption.

Other major suppliers for the 737 Max include Safran (EPA:SAF), Senior PLC (OTCMKTS:SNIRF) and General Electric (GE). GE is in a joint venture with Safran to provide engines for the Max jet.

Berenberg analyst Andrew Gollan said of the possible suspension, “We would highlight Spirit AeroSystems, Safran SA and Senior Plc as names that could potentially experience greater disruption impacts if production is indeed slowed further or halted.”

The Federal Aviation Administration Continues to Ground the Max

In a meeting in early December with the FAA, Boeing found out that it was not going to receive the long-awaited approval to begin delivering planes by the end of the year. According to FAA administrator Stephen Dickson, Boeing needs to complete 10 or 11 different steps in the certification process. “If you do the math,” said Dickson, “it’s going to extend into 2020.”

However, Dickson declined to suggest how far into 2020 the process may take. “If I had that kind of a crystal ball I would certainly be able to share it,” said Dickson. “But it’s very important that our team works very closely with the international authorities that have been working with us and with the Boeing team to do this right.”

For its part, Boeing issued a statement in which the company said, “We continue to work closely with the FAA and global regulators towards certification and the safe return to service of the Max.”

Boeing has an optics problem

However, overpromising and under-delivering in terms of when they could begin delivering the Max is one of the many errors that has bedeviled Boeing throughout this process. Earlier in the year, Boeing expressed optimism that the Max could return to service by the end of this year.

Then, in November, a panel of aviation experts from the FAA’s Technical Advisory Board (TAB) declared that the software changes for the 737 Max that were presented by Boeing were safe. It was a software glitch that has been cited as the predominant factor in two separate 737 Max crashes that claimed the lives of 346 passengers and crew.

However, at the time, the TAB said that there were additional steps that Boeing had to complete before they would receive full approval.

This setback is now the second time Boeing has had to walk back previous statements. Immediately after the crashes, the company maintained that it did not have any knowledge of potential software problems. Those claims were shredded before the company’s CEO appeared before House and Senate subcommittees.

If the company has to suspend production, the stock could turn negative for the year. At one point, it was up 16%.

What’s next for Boeing stock?

For an airline manufacturer, one plane crash – let alone two – creates a breach of trust with consumers. From the outset, Boeing has been, for lack of a better word, clumsy in how they’ve handled the situation.

Boeing is largely considered to have a moat because it is one of only two major airline manufacturers. However, the problem with the Max is becoming a serious threat. The benching of the Max could put an additional order from SunExpress in jeopardy. However, there is a larger threat to Boeing stock that is more difficult to price in. If consumers decide that the Max is not safe, they have other airline options.

After dropping over 4% in pre-market trading, BA stock was struggling to reverse direction. Although Boeing is a Dow component, the dip in Boeing shares was not having much effect on the index which was up nearly 200 points early Monday.