Boeing (ticker: BA) is encountering a mounting issue with its 737 MAX aircraft, causing a decline in its stock shares in early trading on Friday. The stock was down 2.8%, reaching $185.90 in premarket trading. This problem also impacts supplier Spirit AeroSystems, as its shares experienced a 6.5% decrease, down to $16.04. Futures for the S&P 500 and Dow Jones Industrial Average were down by 0.3% and 0.1% respectively.
Quality Concerns Regarding Fastener Holes
The issue at hand pertains to the quality of holes on certain airplanes, specifically the fastener holes in the aft pressure bulkhead of some 737 MAX airplanes. Spirit Aeros Systems (SPR) supplies this part of the plane. Although this problem was initially disclosed in April, Boeing has recently discovered the need for further inspections on additional planes.
Not a Safety Concern, but Presents Production Challenges
Boeing has reassured that this issue does not pose an immediate threat to flight safety, emphasizing that the 737s can continue to operate securely. “We continue to take the time necessary to ensure each airplane meets our standards and regulatory requirements prior to ticketing and delivery,” stated the company in an email.
This problem has been known by investors for a few months, with Boeing affirming that it is not a safety-related matter. However, it does present challenges for the company in terms of delivering aircraft promptly, as it requires additional work and inspections, ultimately leading to longer wait times for customers.
Boeing’s Delivery Challenge
Boeing is facing challenges in meeting its delivery targets for the MAX jets in 2023. Despite delivering 280 planes by the end of the third quarter, the company still falls short of its goal of 400 to 450 deliveries. This shortfall might necessitate an update to Boeing’s guidance, which will be announced in its third-quarter financial results on October 25.
The impact of this issue extends beyond Boeing itself. Spirit Aero, a major supplier for Boeing, derives over 60% of its annual revenue from the company. Notably, the stock price of Spirit Aero dropped from $36 per share after the defect was first discussed in April, while Boeing’s shares were valued at around $214 per piece.
The repercussions of this delivery challenge are evident in both stock prices and Wall Street projections. Initially, analysts predicted a delivery count of approximately 600 planes for Boeing in 2023. However, this number has been revised down to around 550. Moreover, revenue projections have also been adjusted, with estimates lowering from $81 billion to approximately $78 billion.
The impact on Spirit AeroSystems is equally significant. Earlier in 2023, sales projections for the company stood at around $6.4 billion. However, following this delivery setback, these projections have now decreased to just under $6.1 billion.
It is clear that both stock prices and market projections reflect the magnitude of Boeing’s delivery challenge. As industry observers await the third-quarter financial results, it remains to be seen how Boeing will address this issue and whether further adjustments to guidance will be required.