A Boeing 737 Max 8 crashed in Ethiopia killing everyone on board. The crash of the Ethiopian Airlines plane marks the second deadliest accident involving a Boeing 737 in the past five months. So is there a problem with this particular model?
A second deadly crash for a new Boeing aircraft in just six months may deal the manufacturer some short-term problems, but analysts expect the company to weather the turmoil.
Boeing shares fell Monday, a day after Ethiopian Airlines Flight 302 crashed shortly after takeoff, killing all 157 passengers and crew on board.
The Boeing 737 MAX 8 plane that nosedived into the ground outside the Ethiopian capital of Addis Ababa is the same model from a similar crash less than six months ago. On Oct. 29, an Indonesian Lion Air flight plummeted into the Java Sea, killing all 189 passengers and crew members.
The similarities in the two incidents could give Boeing a “near term overhang,” Cai von Rumohr, an equity research analyst with investment banking firm Cowen & Co., said in a note to investors Monday.
Investigators will likely look into similarities between Sunday’s crash and the October incident. In both cases, the pilots attempted to return to the airport a few minutes after takeoff and both flights experienced drastic speed fluctuations during ascent.
However, he said, “the crash’s potential root cause likely is fixable, and we don’t see this as a long term risk for (Boeing) or key 737 MAX suppliers.”
Boeing (BA) shares dropped more than 5 percent Monday and closed at $399.89. The stock had risen 28 percent over the past 12 months.
As investigators and airline regulators work to process the post-crash situation, “we anticipate heightened volatility in Boeing shares,” Rajeev Lalwani, analyst with Morgan Stanley, said in a note to investors Monday. “Though it is early to draw conclusions, there may be concerns of disruption around safety, production, groundings and/or costs, all of which should be manageable longer-term.”
U.S. airlines’ defense of the 737 MAX 8 and investors seeing a chance to snatch up Boeing stock at a discount could have helped the stock bounce back Monday, says Jim Corridore, director of industrials equity research at CFRA Research.
Boeing has delivered 350 of the 737 MAX 8 planes – and it has orders for more than 4,600 more – and the aircraft has had “tens of thousands of flight hours,” Corridore said, “enough to feel the plane is safe.”
Several countries grounded Boeing 737 MAX 8 planes after Sunday’s crash over safety precautions. China and Indonesia grounded their jets, and Ethiopian Airlines grounded its remaining four Boeing 737 MAX 8 planes until further notice as an “extra safety precaution,” the operator said.
The aircraft maker’s MAX 8 plane is a newer, more fuel-efficient model within its popular 737 line.
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In a note to investors Monday, Corridore said he expected most 737 MAX planes to resume flying “over the next day or two.”
“We think the issue could be related to the plane’s software, which causes it to dive when it thinks the plane might stall,” said Corridore, who maintained a “Strong Buy” on Boeing shares. “This seems to be what happened in the Lion Air crash. However, the system is easy to override and pilots should know how to do it.”
Boeing said a technical team was headed to the crash site to investigate, along with the Ethiopia Accident Investigation Bureau and U.S. National Transportation Safety Board.
The Federal Aviation Administration could join in the grounding of the 737 MAX planes, which would worsen the near term for Boeing, von Rumohr said. “But we don’t see this as a long term problem; and the traveling public has had a very short memory of previous catastrophic crashes,” he noted.
Contributing: The Associated Press
Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider.
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