There is an eerie calm settling over Boeing Company shares (BA). Having been pressured sharply lower after the recent fallout from the second horrific crash of a 737 Max 8 airliner, the price is trading sideways in an incredibly tight range. Now, news about the (Lion Air) Max 8 plane having issues the day before it crashed could disrupt this detente.
An off-duty pilot flying on the doomed airliner allegedly managed to save it from nosediving the day before it eventually crashed. This is significant, because if true, it would demonstrate that it was not a random, unlucky mark but an obvious issue in the software. There was a substantial problem with the aircraft or the pilot’s ability to fly it.
Given the upward momentum in the share price this year, it is perhaps no surprise that investors are reluctant to jump out of a company which has been posting record-breaking numbers. As many nations have grounded the jet , Boeing stock is still performing well considering how much its share price is reliant on the thousands of 737 Max’s currently ordered.
Reuters featured an article on the economic effects to Boeing, including this quote from CAPA Center for Aviation chief analyst Brendan Sobie:
These unfortunate developments could give airlines that have potentially over-ordered an opportunity to review their requirements and fleet strategy.
For now, Boeing is doing everything it can to fix the issue. It has been a terrible PR month with criticism falling from other areas as well. Public relations is the crux of the matter, and why BA bulls could be at risk. The shares were already appearing overbought after a historic run. If people everywhere start canceling planes, plenty of revenue will go up in smoke.
The actual fixing of the software might not be enough. Anything with Max in the name could deter passengers from flying with airlines that carry those jets. Boeing’s reputation is hanging by a thread , but when examining the stock market, BA is still in the green this year . Conversely, things could soon look promising for the top private jet companies, offering an exciting alternative to more standard air travel.
The rising volumes in BA’s sideways range is interesting. Some hedge funds could be trying to use this liquidity to exit and wait for some certainty. The fallout from the Ethiopian disaster may not be fully priced in. Plane groundings are a problem, but order cancellations are a disaster. There has been little movement, and airlines need these planes . China may be the one to watch, as there is evidence it will use the Ethiopian Airlines disaster for political leverage and cancel some Max orders.
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