Boeing chiefs toasted a ‘turnaround year’. Then disaster struck again

A fatal crash of an Air India Boeing 787-8 Dreamliner, the first for this model since its 2011 launch, has cast a shadow over Boeing's efforts to recover from the 737 Max crisis, potentially jeopardizing new orders and prompting increased scrutiny from regulators and airlines. Despite a relatively muted stock market reaction suggesting investors don't believe the crash is due to a fundamental flaw, the incident has led to the cancellation of a planned announcement by Air Maroc and the absence of Boeing's CEO and commercial aircraft chief from the Paris Air Show, while Indian authorities conduct extended surveillance of Boeing 787 planes.

Analysis

The fatal crash of an Air India Boeing 787-8 Dreamliner on June 13th, the model's first such incident since its 2011 launch, critically threatens Boeing's (BA) nascent recovery from the 737 Max crisis. This event occurred just as CEO Kelly Ortberg declared a "turnaround year," and contrasts sharply with the optimism expressed by commercial aircraft chief Stephanie Pope ten days prior. The crash, involving a Dreamliner with nearly 15 years of service and 1,100 units active (388 being the 787-8 variant), jeopardizes efforts to dispel the "if it’s Boeing, I’m not going" sentiment, reignited by the 737 Max's two fatal accidents in 2018-2019 and a subsequent door plug failure on an Alaska Airlines 737 Max in January of the previous year. Prior to this, Boeing showed progress, delivering 45 aircraft in May, including 38 Max jets at the FAA-imposed cap, and securing 303 new orders. However, the Air India incident has already prompted the reported cancellation of an Air Maroc Dreamliner order announcement and the withdrawal of Boeing's leadership from the Paris Air Show. Indian authorities have initiated "extended surveillance" on Boeing 787s and while a British Airways 787-10 delivery delay was attributed to paperwork, scrutiny on the Dreamliner, which was grounded in 2013 for battery issues and faced recent whistleblower claims about fuselage integrity (denied by Boeing), is intensifying. Boeing's stock has declined approximately 5.5% post-crash but remains up 16.6% year-to-date, suggesting investors currently perceive this as potentially an isolated issue rather than a systemic flaw, given the Dreamliner's long service record. However, the investigation's outcome is pivotal; findings of fault with Boeing could severely undermine investor confidence and its forecast of a 50,000-strong global fleet by 2044, impacting major operators like Tui and British Airways.

Key Decisions for Investors

• Investors should closely monitor the official investigation into the Air India 787 crash, as findings of Boeing's culpability would likely trigger a more severe market reaction and significantly impede its fragile recovery.
• It is prudent to track any forthcoming regulatory actions from aviation authorities like the FAA and Indian regulators concerning the 787 Dreamliner fleet, and to observe potential impacts on Boeing's order book and relationships with key airline customers.
• Re-evaluate risk exposure to Boeing; while the Dreamliner's long operational history without prior fatal incidents offers some distinction from the 737 Max issues, this crash introduces new material uncertainty regarding quality control and potential liabilities that could affect its recent share price gains.