Boeing Faces Setback as FAA Grounds Specific 737 MAX 9 Jets

Boeing (BA) is experiencing a challenging day in the stock market following a significant setback over the weekend. The Federal Aviation Administration (FAA) has temporarily grounded specific Boeing 737 MAX 9 jets operated by U.S. airlines. This move came in response to a troubling incident during an Alaska Air (ALK) flight from Portland, OR, to Ontario, CA, where part of the aircraft blew off, necessitating an immediate return to Portland International Airport. Fortunately, the skilled pilots managed to safely land the plane without any injuries to passengers or crew members. In this article, we’ll delve into the details of the incident, its impact on Boeing, Spirit Aerosystems, and the airlines involved.

The Incident and Its Cause

The incident that triggered the FAA’s decision involved a section of the Boeing 737 MAX 9 aircraft where an emergency exit is typically located. Federal regulations mandate extra emergency doors on aircraft with a seating capacity of at least 180 passengers. However, the aircraft involved in the incident had fewer than 180 seats, which allowed Alaska Air and United Airlines (UAL), another operator of MAX 9 aircraft, to use a “plug” instead of an emergency door in this specific configuration.

Spirit Aerosystems: A Critical Supplier

The spotlight has turned to Spirit Aerosystems (SPR), a key supplier for Boeing, in the wake of this incident. SPR plays a crucial role in ensuring the safety and quality of aircraft components. According to reports, there are two stages of checks for the panel that detached from the aircraft: the first analysis occurs at SPR, the manufacturer of the “plug,” and the second takes place at Boeing.

As the primary supplier, SPR is facing the most significant repercussions today. Boeing represents approximately 53% of SPR’s consolidated FY22 sales, with Airbus (EADSY) at 22% and the U.S. Government at 13%. Investors are growing increasingly impatient with SPR due to a string of setbacks related to quality control issues. In April, SPR reported a quality problem in the fuselage section of certain 737 models, followed by another issue involving improperly drilled holes on the aft pressure bulkhead in August.

Boeing’s Response and Challenges

While Boeing’s shares have witnessed a decline, they are not under the same intense selling pressure as SPR. It appears that the market is largely attributing blame to SPR, especially considering its history of quality control issues. However, Boeing is not immune to the impact of this setback. With the grounding of 171 MAX 9 jets, Boeing is expected to face near-term cost headwinds. It’s essential to note that these 171 jets represent only a small fraction of Boeing’s extensive fleet of planes in operation.

Impact on Airlines

Both Alaska Air and United Airlines have been configuring their MAX 9 aircraft without the additional emergency exits, following regulations for aircraft with fewer seats. However, ALK was the airline that experienced the blowout incident, resulting in significant selling pressure on its shares. Adding to ALK’s woes, the airline had completely replaced its Airbus fleet with MAX 9 aircraft by the end of September, a move that now appears ill-timed.

As ALK grounded its fleet of 737 MAX jets and canceled over 150 flights while offering refunds to affected passengers, questions arise about whether Boeing will be held responsible for lost payments to the airlines.

Bottom-line: The incident over the weekend involving the detachment of a crucial aircraft component has cast a shadow over Boeing, Spirit Aerosystems, and the U.S. airlines involved. An ongoing investigation will provide further clarity on the causes and potential liabilities. While Boeing is expected to overcome this setback relatively quickly, Spirit Aerosystems faces an uphill battle due to its history of quality control issues. The incident serves as another reminder of the critical importance of safety and quality control in the aviation industry, where even a minor flaw can have significant repercussions.