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Boeing Stock Already Is on Its Way Back After the 737 MAX Debacle

James Brumley

It looks grim, on the surface. Just five months apart, two new 737 MAX passenger jets from Boeing (NYSE:BA) crashed, claiming the lives of 346. The plane was not only supposed to be hyper-efficient, but safe. The two crashes suggest a flaw in the software that automates control of the plane.

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Shareholders paid the price. Just days after Boeing stock had soared to record-high values, the March 10 incident in Ethiopia pulled the rug out from underneath that rally. BA stock fell from $416 per share to a low near $362 just a couple of weeks later.

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There’s a reason, however, shares have since snapped back to a price around $395 despite the backdrop of damning headlines. The market knows, as tragic as the matter has been, Boeing can dig its way out of its publicity hole.

Interested investors might want to go ahead and pull the trigger now.

The Crashes and Boeing Stock

The precise causes for both crashes have not been firmly identified, but the commonalities are uncanny. In both cases, flight control problems were reported. The planes’ internal safety system was apparently trying to avoid stalling by pushing the nose of the plane down, but pilots in both cases were deliberately trying to point the nose of the plane up.

There’s plenty of blame to go around, most of which admittedly falls in Boeing’s lap.

While the 737 MAX’s flight control system is arguably superior, it’s also confusing. Pilots who’ve not been trained on this particular plane and control system may not respond as prescribed, but Boeing arguably should have recognized most pilots wouldn’t be able to train as merited.

At the same time, experience and training requirements overseas aren’t nearly as stringent as they are in the United States. One could even say the Federal Aviation Administration’s certification process of the 737 MAX was inadequate. And, people have said it.

Still, it’s Boeing’s highly-touted plane that’s become a liability. It will deal with the fallout more than any other.

It will deal with the fallout though. The airframe and physical design of the aircraft has never been in question, and a fix to the plane’s software is in development. That’s relatively easy.

Recovery

It’s not as if companies haven’t been in similar or worse situations before. Take Tex-Mex eatery Chipotle (NYSE:CMG) for instance. It was the epicenter of an E. coli outbreak in late 2015 was handled horribly. Although it took years to regroup and rebuild, CMG stock is less than 10% away from its record-high set in mid-2015.

Johnson & Johnson (NYSE:JNJ) got past its cyanide-laced Tylenol. General Motors (NYSE:GM) overcame several fatalities linked to faulty ignitions switches.

That said, Boeing may not be handling the gaffe quite as well as it could, showing its inexperience with public relations challenges of this ilk.

According to public relations firm kglobal’s partner Gene Grabowski:

“One of the seeds of Boeing’s mishandling of the crisis is the very fact that it considers itself a business-to-business operation…A business-to-consumer operation like Procter & Gamble – or an airline, like Southwest Airlines or even United on its best days – is better at handling crises. But companies that perceive themselves as business-to-business actually do a worse job because they’re not used to dealing directly with consumers.”

Even so, public relations experts see a light at the end of the tunnel, even if that light is distant.

“Boeing is going to survive, but they’re not going to look good in the short term,” said Eric Dezenhall, CEO of public relations firm Dezenhall Resources. “They have the leadership, the resources, and the diversification to survive. What I always tell clients in these situations is, ‘Don’t look for praise anytime soon.'”

“Soon” is a relative matter though, and stocks tend to move in advance of measurable strength or weakness.

Looking Ahead for Boeing Stock

And that’s what makes the past couple of weeks such interesting ones. As time passed, Boeing’s software was narrowed down as the core culprit in the pair of crashes. Boeing stock rebounded anyway, gaining nearly 9% from its March low.

BA stock made the gain despite what Grabowski estimated to be an adverse fiscal impact of between $30 billion and $40 billion.

It’s possible the market is wrong, misreading how quickly airlines and consumers will forgive and forget once the planes’ new software is in place. Possible, but not likely. More often than not, when investors collectively trade against the grain of headlines, they know what they’re doing.

More turbulence is undoubtedly ahead, but Boeing stock remains one of the market’s top long-term prospects. Demand for air travel is still on the cusp of major growth that will double the number of airworthy planes between now and 2036.

As of this writing, James Brumley held a long position in Boeing. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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