Boeing Grounded

Boeing's stock dropped after plane crash

Image source: shanvood, Julia Zavalishina - Shutterstock

What's going on?

Shares of aerospace giant Boeing initially plummeted their most since 9/11 on Monday after another deadly crash involving one of the company’s planes.

What does this mean?

Sunday’s Ethiopian disaster was the second incident involving Boeing’s two-year-old 737 MAX 8 model – the latest version of the most successful commercial jet in history – in five months. Both planes were nearly new, and both crashes occurred during takeoff – though there’s no evidence yet of a link between the two.

One plane crash doesn’t usually have a big effect on the shares of the manufacturer, but two in quick succession – and involving the same plane – is a different story. Especially since China, a country Boeing considers vital to its continued success, immediately ordered the grounding of all 97 of its airlines’ MAX aircraft, with Indonesia following suit (tweet this).

Why should I care?

For markets: MAX risk.

The 737 is the workhorse of airlines around the world, and generates almost a third of Boeing’s profit. There are nearly 5,000 outstanding orders for the 737 MAX – at an average price tag of $122 million per plane, that’s around $610 billion of business. So it’s no wonder concerned investors sent Boeing’s stock down 7% on Monday. The 737 MAX’s biggest buyer is US carrier Southwest Airlines, whose entire fleet consists of 737s. Southwest has 249 MAX orders outstanding; worried investors sent its shares down 1%. Vietnamese low-cost carrier VietJet Air, meanwhile, booked an extra 100 737 MAX planes just two weeks ago. Both these orders – and more – could now be in jeopardy.

The bigger picture: Plane sailors are facing headwinds.

Boeing’s biggest rival, Airbus, had major issues with its A380 superjumbo. Despite receiving significant European government loans for the project (which the company now suggests it may not repay in full), Airbus pulled the plug on the A380 in February after major buyers canceled orders. Perhaps Boeing’s struggles will give its arch-rival a boost, however – Airbus’s stock lifted 1% on Monday.

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over 800,000 Finimizers

Read next

You’ve Had Your Chips

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.