The Boeing Company BA is in the news once again as problems related to its bestselling 737 jets resurfaced yet again. This time, the problems came in the form of manufacturing defects in slat track assemblies on some of the 737 airplanes. The company recently issued a statement to the Federal Aviation Administration (FAA) noting certain wing components for its grounded 737 Max passenger plane and prior model 737 Next Generation (NG), which may have been improperly manufactured.
A Brief Note on the Potential Wing Problems
The manufacturing defects in the slat tracks, which modify the lift and drag characteristics of the plane's wing during takeoffs and landings, are the latest addition to the ongoing problems of Boeing’s 737 jets. If not replaced, this could result in a degraded aircraft performance during takeoff and landing due to the loss of lift.
Moreover, operating the 737 Max at high speeds could result in further damage to the rest of the wing and the fuselage system. Per FAA, 32 Boeing Next Generation and 33 Boeing Max aircraft are currently affected in the United States, whereas the worldwide figures increased to 133 and 179, respectively.
The Downfall of Boeing’s 737
Boeing has been facing immense scrutiny since two crashes of its 737 Max planes that killed 346 people. The first crash involved a Lion Air flight 610 and the second an Ethiopian Airlines flight 302 in March 2019. Since then, all of Boeing's 737 Max planes were grounded worldwide, leading to huge hit in the company’s revenues.
Post the Ethiopian Airlines crash, deliveries for the 737 MAX have been suspended until clearance is granted to Boeing by appropriate regulatory authorities. Inevitably, the grounding of 737 aircraft has resulted in year over year reduction in its commercial airplanes revenues during the first quarter of 2019. This will continue to affect results until deliveries resume and monthly production rates increase.
How Will This Impact Boeing?
With the additional problem arising from the faulty slat tracks, 737 jets are expected to remain grounded probably till the end of the year. Consequently, during April, Boeing announced plans to reduce 737 airplane production rates from 52 aircraft per month to 42.
If the problems of 737 airplanes are not fixed within a reasonable time period, the company’s loyal customers might start cancelling orders for these planes and look for alternatives, as safety of the passengers and crews are of utmost importance for the carriers.
Interestingly, amid all this fiasco, Airbus SE EADSY acquired a $35-billion jet deal from China in March for delivering 290 A320- series narrow-body planes and 10 A350 wide-body planes. This was a huge blow to Boeing, as it loses out a considerable share in the Chinese market. Although the company still commands a strong position in the single aisle commercial airplane market, order cancellations for the 737 jets and new orders for Airbus planes will continue to hurt Boeing’s future prospects.
Shares of the company have lost 3.6% in the past six months compared with the industry’s decline of 5.7%.
Zacks Rank & Key Picks
Boeing currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the same sector are Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lockheed Martin came up with average positive earnings surprise of 17.35% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 4.21% to $20.28 in the past 60 days.
Northrop Grumman delivered average positive earnings surprise of 18.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 1.85% to $19.29 in the past 60 days.
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