Boeing’s stock plunged over 8% on Monday after several airlines grounded some of the company’s most popular jetliners. The moves come amid an investigation into the causes of two recent crashes of Boeing’s 737 MAX 8 aircraft.
FAA Grounds 737 Max 9 Jets Over Safety Concerns
On Monday, the Federal Aviation Administration (FAA) ordered all Boeing 737 Max 9 jets grounded until further notice, citing concerns over the aircraft’s automated flight control system.
This follows decisions by China’s aviation regulator and several airlines to ground their 737 Max 8 fleets after a deadly Ethiopian Airlines crash on Sunday that killed all 157 people on board. It was the second disaster involving a 737 MAX 8 jet in less than six months, after a Lion Air flight crashed in Indonesia last October, killing 189 people.
While the cause of the latest crash remains under investigation, experts pointed to potential issues with the plane’s Maneuvering Characteristics Augmentation System (MCAS), an automated system designed to prevent the aircraft from stalling.
The FAA said its order affects a limited number of Boeing’s largest 737 model and said it was working closely with the aircraft manufacturer and other regulators on further steps.
According to FAA records, there are currently only 27 MAX 9 aircraft actively registered in the United States. Major U.S. airlines do not operate the MAX 9 at this time.
Multiple Airlines Ground 737 Max 8s
In addition to the FAA’s decision on the 737 Max 9, several major carriers have decided to ground some or all of their 737 Max 8 aircraft:
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China ordered its domestic airlines to suspend commercial operation of nearly 100 Boeing 737 MAX 8 jets. This accounts for about one-fourth of the 374 planes of this model currently in use worldwide.
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Indonesia said it would temporarily ground MAX 8 jets operating in the country.
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Ethiopian Airlines, Cayman Airways and Comair have grounded their 737 Max 8s.
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In the U.S., Southwest Airlines and American Airlines said they would continue operations, while monitoring the investigation into the crash.
Table 1 summarizes the status of 737 Max fleets for major carriers:
| Airline | Action on 737 MAX fleets | Number of jets affected |
|---|---|---|
| China carriers | Grounded MAX 8s | ~100 |
| Ethiopian Airlines | Grounded MAX 8s | 4 |
| Cayman Airways | Grounded MAX 8s | 2 |
| Comair (South Africa) | Grounded MAX 8 | 1 |
| Southwest Airlines (U.S.) | Continuing operations | 34 |
| American Airlines (U.S.) | Continuing operations | 24 |
Boeing said it did not intend to issue new recommendations about the jets to customers. It plans to update the software for the MCAS flight control system in the coming weeks.
Financial Impact on Boeing
News of the crashes and groundings sent Boeing shares plunging over 8.5%, making it the biggest drag on the Dow Jones Industrial Average. This wiped nearly $29 billion off its market capitalization, marking the stock’s worst day since the 9/11 attacks.
Boeing’s 737 family of aircraft, including the MAX models, have emerged as its most popular aircraft type, with about 5,000 orders placed or more than seven years worth of potential production for the Chicago-based company.
Boeing could face massive compensation costs if the 737 MAX 8 is found to have suffered from a major design or technical fault, analysts warned. The company may also have to slow production if more airlines stop accepting further MAX deliveries.
Losing the confidence of the flying public and orders from airlines could end up costing Boeing heavily in both compensation payments and lost future sales. This scenario would have negative implications for the U.S. economy more broadly.
Next Steps
With the causes of recent 737 MAX crashes still under investigation, Boeing and global aviation regulators face crucial next steps:
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Software Fix: Boeing says it plans software changes and training revisions related to the automated MCAS flight control feature by April that would make it “more robust.” Aviation experts say a software upgrade alone is unlikely to address broader concerns.
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Mandating Design Changes: Depending on the crash probe findings, the FAA could mandate more complex hardware fixes on the 600 MAX planes already in service. However, deeper aircraft design changes could delay Boeing’s plans to ramp up production this year.
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Pilot Training: Better pilot training and improved documentation around the MCAS automated flight controls could help avoid similar issues in future. Boeing may need to offer 737 MAX specific training if the aircraft’s handling is significantly different from older 737s.
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Regaining Trust: Perhaps the biggest challenge will be regaining the trust of airlines, crews and passengers amid the intense scrutiny the 737 MAX fleet now faces globally. This is why the findings of the crash probes are so crucial for Boeing.
Boeing CEO Dennis Muilenburg said the company is confident in the safety of the 737 Max jets, but understands “regulatory agencies and customers have made decisions that they believe are most appropriate” for their home markets.
How Boeing navigates the current crisis could determine the future course of the company and have ripple effects across the global aviation sector.
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