Boeing may face billions more in losses as Max crisis deepens
Messages between two Boeing employees reveal 737 Max test pilot experienced simulator flaws before service
Boeing may have to book billions of dollars in additional charges, two brokerages said on Monday, following latest developments around the planemaker's grounded 737 Max jet that calls into question the timing of the aircraft's return to service.
Credit Suisse and UBS downgraded the stock after reports on Friday showed internal messages between two Boeing employees stating that the plane's anti-stall system behaved erratically during testing before the aircraft entered service.
In newly released instant messages from 2016, a top Boeing Co 737 Max test pilot tells a colleague that the jet's MCAS flight control system - the same one linked to two fatal crashes - was "running rampant in the (simulator) on me."
The new revelations pose fresh challenges for Boeing, which is reeling under pressure after two fatal crashes forced the company to ground the planes and book billions of dollars in losses.
Boeing's shares fell 2 per cent to $337.20 US in premarket trading on Monday, adding to their 18 per cent decline since the second deadly crash of the popular single-aisle jet in Ethiopia.
Although Boeing continued producing the planes, albeit at a lower rate, the brokerages said there is an increasing possibility that the company may have to halt production altogether.
"We see increasing risk that the Federal Aviation Administration won't follow through with a certification flight in November and lift the emergency grounding order in December," UBS analyst Myles Walton said, downgrading the stock to "neutral" from "buy."
Walton cut his target price on Boeing's shares by $95 to $375, citing an increase in "likelihood of a pause on the 737 Max production system" due to a delay in the jet's return.
Company expresses regret over messages
Boeing's shares fell nearly 7 per cent on Friday after Reuters first reported the news, which prompted a demand by U.S. regulators for an immediate explanation and a new call in Congress for the company to shake up its management.
The company on Sunday expressed regret over the messages, and said it was still investigating what they meant.
Credit Suisse, which had stuck to its "outperform" rating since July 2017, downgraded the stock to "neutral" and cut its target price by $93 to $323, 6 per cent below Boeing's Friday closing price of $344.
With the likely delay in Max's return to service until February 2020 and the stoppage of production, the American planemaker could record $3.2 billion in charges over four months on top of a $5.6 billion charge taken so far, analyst Robert Spingarn said.
"BA could be forced to furlough or fire a portion of its Max workforce. This could result in lost labour force productivity when (and) if the MAX does return to service. We have seen the consequences of such events in shipbuilding: it can be ugly," said Spingarn.
UBS also downgraded Boeing's biggest supplier, Spirit AeroSystems, to "neutral" from "buy" and cut its target price on the stock to $88 from $92, citing possible production cuts.