President Donald Trump ordered the FAA Wednesday to ground all Boeing (BA) 737 Max jets, after a growing number of regulators around the world suspended the jet, including Canada’s, in the wake of two fatal crashes in five months. But Boeing stock rose.
Boeing said it “has determined — out of an abundance of caution and in order to reassure the flying public of the aircraft’s safety — to recommend to the FAA the temporary suspension of operations of the entire global fleet of 371 737 Max aircraft.”
On Tuesday, Trump spoke on the phone with Boeing CEO Dennis Muilenburg, who reportedly assured him of the plane’s safety.
Trump’s order Wednesday covers both the 737 Max 8 and 9 models and adds to the drumbeat of bad news for the best-selling plane following Sunday’s deadly Ethiopian Airlines crash.
The FAA said the grounding decision was due in part to new satellite data that it saw this morning and acknowledged that the Lion Air and Ethiopian Airlines crashes had similarities.
Earlier Wednesday, Canada joined Hong Kong, Lebanon, Thailand, India, Kuwait, the UAE and other countries in banning the 737 Max from their airspace. China made the first such move Sunday and was soon followed by Indonesia, Singapore, Malaysia, Australia and Oman.
Ireland, the United Kingdom, France, Germany, Iceland, Italy and the Netherlands followed suit, before aviation regulators suspended all 737 Max flights across Europe.
But as late as Tuesday evening, the FAA doubled down on its confidence in the plane, saying there is “no basis to order grounding.”
Boeing’s sales prospects are under increasing pressure too. VietJet said it will decide on its 200-plane, $25 billion Boeing 737 Max order after the official probe is complete. On Tuesday, Bloomberg reported Lion Air is planning to switch a $22 billion 737 Max order to Airbus, while Kenya Air reconsiders tentative plans to place an order.
Also Wednesday, Norwegian Airlines, a major customer, said it expects Boeing to foot the cost for lost revenue from canceled 737 Max 8 flights. European aviation regulators grounded the aircraft Tuesday.
But Lufthansa said Wednesday it has ordered 20 Boeing 787-9 Dreamliners and 20 Airbus (EADSY) A350-900s for long-haul flights. The new aircraft will replace four-engine planes and will be delivered from late 2022 to 2027.
Boeing Stock Technical Analysis
Boeing stock closed up 0.5% at 377.14 on the stock market today, reversing losses and ending a streak of seven straight declines. Shares remain lodged under the 50-day average after falling below it for the first time in two months Monday. Rival Airbus jumped 3%.
Boeing stock on Tuesday flashed a round-trip sell signal, which means a stock has climbed more than 10% from buy point and then given it all up.
Shares of American Airlines (AAL) climbed 3%, and Southwest Airlines (LUV) edged up 0.4%. Flight schedules indicate that the 737 Max accounts for 7.2%, 2.4%, and 2.9% of domestic capacity in Q2 for Southwest, American, and United Airlines (UAL), according to analysts at Evercore ISI
Among Boeing and aerospace suppliers, Spirit AeroSystems (SPR) rose 1.6%, Triumph Group (TGI) fell 2.8%, Hexcel (HXL) dipped 1.1%, and United Technologies (UTX) rose 1.6%.
The iShares U.S. Aerospace & Defense ETF (ITA) rose 0.7%, and the SPDR S&P Aerospace & Defense ETF (XAR) added 0.4%.
Boeing 737 Max Crucial To Profits
The 737 Max program is crucial to Boeing operating profits, with most deliveries still to come.
Moody’s estimates the average operating margin for each Max 8 delivery at $12 million-$15 million or more.
Moody’s analysts reiterated an A2 credit rating Tuesday.
“We anticipate Boeing will generate free cash flow of $10 billion or more this year, based on estimated commercial aircraft deliveries of about 850 during the year,” they said.
But the delivery estimate is before any potential deferrals following the second Boeing 737 Max 8 accident in less than five months, they added.