NTSB urges quick fix on Boeing plane engines to prevent smoke from filling cabin after a bird strike

The NTSB is urging Boeing 737 Max engine modifications after bird strikes led to smoke filling cockpits and cabins on Southwest Airlines flights in 2023. The issue stems from a load reduction device on CFM International engines inadvertently releasing oil into the hot engine when activated, causing smoke. While CFM is developing a software update expected in early 2025 and Boeing is updating pilot checklists, the NTSB is also recommending that European and Chinese aviation regulators evaluate similar engines on Airbus A320neo and C919 planes for the same susceptibility.

Analysis

The National Transportation Safety Board (NTSB) has issued an urgent recommendation for modifications to CFM International engines on Boeing's (BA) 737 Max aircraft, following two 2023 incidents on Southwest Airlines (LUV) flights where bird strikes led to smoke infiltrating the cockpit and cabin. This issue arises from a load reduction device, a safety feature on the CFM engines (a GE Aerospace (GE) and Safran Aircraft Engines joint venture), which can inadvertently release oil into the hot engine post-activation, generating smoke. CFM is actively developing a software update, projected for release in the first quarter of 2025, to rectify this, while Boeing is concurrently updating pilot checklists. Significantly, the NTSB has also prompted European and Chinese aviation safety regulators to evaluate similar CFM engine models utilized on Airbus A320neo and Commercial Aircraft Corporation of China's C919 aircraft for comparable susceptibility. This engine concern adds another layer of operational and reputational risk for Boeing, which is already grappling with production limitations on the 737 Max (capped at 38 jets per month) stemming from previous safety incidents, including two fatal crashes and a recent door plug failure on an Alaska Airlines (ALK) flight. The NTSB's report also highlighted that some pilots were unaware of these smoke incidents, indicating potential shortcomings in the dissemination of critical safety information, despite prior warnings from the FAA and Boeing.

Key Decisions for Investors

• Investors in Boeing (BA) should closely monitor the progress and efficacy of the CFM engine software update, anticipated by Q1 2025, and scrutinize any further regulatory actions, given the stock's deeply negative sentiment (-0.9) and the compounding operational challenges.
• Shareholders of GE Aerospace (GE) should assess the potential financial and reputational impact stemming from its CFM joint venture, including costs associated with the engine fix and its possible extension to engines on Airbus A320neo and C919 aircraft.
• Airlines operating the Boeing 737 Max, and potentially those with Airbus A320neo or C919 fleets equipped with similar CFM engines, must prepare for potential airworthiness directives that could necessitate engine modifications, leading to increased maintenance expenses and possible operational disruptions.
• Given the NTSB's findings and the history of issues with the 737 Max, investors should maintain a cautious outlook on Boeing, factoring in ongoing safety concerns, production constraints, and the potential for further negative developments impacting the company's recovery and stock performance.