When the first Boeing (NYSE:BA) 737 Max 8 crashed on Oct. 29, 2018, Boeing stock lost 6.6% in a single day of trading. It got all of that back and then some within two days.
On Sunday, a second 737 Max 8 crashed in Ethiopia killing all 157 on board. As I write this — about an hour into Monday trading — Boeing stock is down almost 8%.
If you own Boeing stock, I’m sure the second thing you thought when you heard the news Ethiopian Airlines Flight 302 had crashed en route to Nairobi, was what to do with your shares? The first, unless you have no soul, was to commiserate with the surviving friends and family of those on board.
Plane crashes happen, albeit at a rate far less than car accidents, and yet whenever they do, we struggle to figure out why. That’s especially true when talking about a relatively new plane that’s only been in service since May 2017.
Boeing builds some of the best commercial aircraft in the world. Unfortunately, accidents do happen.
Forward Center of Gravity
After the first crash, Boeing issued an operations manual bulletin to pilots for the new airliner which advised them how to deal with a faulty angle of attack sensor. Erroneous readings could lead to a pilot putting the plane into a stall.
I saw a retired airline captain on television this morning talking about the latest crash and how Boeing had installed software on the 737 Max 8 (new to 737s) that counteracts the plane’s natural center of gravity, which is more forward compared to older 737 models due to heavier, more-fuel-efficient engines. As a result, it tends to pitch the nose higher on takeoff, possibly causing a stall.
The software, known as MCAS, short for maneuvering characteristics augmentation system, pushes the nose down to prevent this from happening. Pilots unfamiliar with the system could overreact the other way putting the plane into a stall.
Better Safe Than Sorry
Now early in the investigation, many countries including China have grounded their 737 Max 8s until the cause of the crash is established. Although many in the news media are scrutinizing the 737 Max 8, Boeing has issued no guidance to its customers regarding the plane.
“Safety is our number one priority and we are taking every measure to fully understand all aspects of this accident, working closely with the investigating team and all regulatory authorities involved,” the company said in a statement.
Dennis Tajer flies the 737 Max 8 for American Airlines (NASDAQ:AAL). He’s also a spokesperson for the Allied Pilots Association. He believes the 737 Max 8 is a safe plane. “I am soundly confident in the aircraft’s safety,” Tajer said of the 737 MAX 8. “If we weren’t confident, we wouldn’t be flying it.”
The Bottom Line on Boeing Stock
I’ve been a big fan of Boeing stock for some time. This latest crash isn’t going to change my opinion of the company, the quality of its product, or the strength of its business model.
In April 2018, I wrote that BA stock was heading for the clouds, with a $1,000 share price not out of the realm of possibility over the next five years. At the time it was trading around $329.
In February, I offered seven reasons to own Boeing stock. Chief among them was the company’s tremendous free cash flow. As long as that keeps moving higher, I see no reason the shares won’t continue their winning ways.
What happened in Ethiopia is truly unfortunate. People from many different countries including the U.S. were on that plane. As a result, the entire world is grieving their loss.
Call me naive, but accidents like this only increase Boeing’s resolve to make the best planes it possibly can, and that should translate into even more profits down the road.
Don’t mistake the terrible things that happen in life with a crappy company or stock. Boeing’s neither of those despite the current optics.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
