Less Goodwill, Less Money

Boeing Shares Plummet As U.S Grounds Planes

by Jerry Chiemeke

Less Goodwill, Less Money

Tragedy has the ability to create a ripple effect, and sometimes certain events and consequent decisions come with their economic repercussions. For the Boeing Company, one of the world's major aviation stakeholders, things seem to be going from bad to worse.

The United States has joined other countries to ground its 737 Max planes following the fatal Ethiopian Airlines crash that occurred on Sunday March 10.

Shares of Boeing fell 3% immediately after President Donald Trump announced the move from the White House. The shares then rebounded in a sign that the grounding had been largely priced in to Boeing's stock. But right now, the stock is still down more than 10% since the crash, wiping more than $25 billion off the company's market value.

The US grounding comes after two fatal crashes in the last five months involving the 737 Max 8 jet. A Lion Air flight crashed in Indonesia in October, and an Ethiopian Airlines plane crashed on Sunday. Neither of the crashes left any survivors.

Investigators are still looking into the cause of both crashes.

A preliminary investigation shows that pilots in the Lion Air crash struggled to get control of the plane after the nose was forced down by an automatic safety feature. The CEO of Ethiopian Airlines said his pilots also were reporting problems controlling the plane before the crash. Aviation authorities around the world have been ordering the planes to be grounded for the last three days. The United States was essentially one of the few countries still allowing the planes to fly until the recent announcement.

Photo Credit: Lasvegasnow.com

Boeing said it remains confident in the safety of the jets, but that it recommended the shutdown itself "out of an abundance of caution and in order to reassure the flying public of the aircraft's safety," according to a statement from the company.

"We are supporting this proactive step," CEO Dennis Muilenburg said in the statement. "We are doing everything we can to understand the cause of the accidents in partnership with the investigators, deploy safety enhancements and help ensure this does not happen again."

He again expressed the company's sympathy to the families of victims of the crash and said that the company has no greater priority than the safety of its aircraft.

Shares of the three US airlines that had been using the planes - American Airlines, Southwest and United - saw their shares briefly shoot lower on the news, and then quickly rebound to positive territory. It is very possible that Boeing will compensate the three carriers for lost revenue. There are 67 Boeing 737 Max planes that operate between them.

The airlines all said they would work to accommodate passengers affected by the grounding. But the planes make up small portion of their overall fleets -- Boeing Max jets account for less than 3% of the capacity of each of the airlines. Boeing has a history of paying airlines if the planes they own are grounded because of safety orders. It did so after a three-month grounding of the 787 Dreamliner jet in 2013. Earlier on Wednesday March 13, the CEO of European discount carrier Norwegian Air said it would bill Boeing for lost revenue from the grounding of 18 737 Max 8 jets.