Stock in Boeing Co. (NYSE: BA) has taken a big hit this year, falling -17.86% in the last three months. Investors have lost confidence following two fatal crashes that were tracked to software defects in 737 Max jets. With the planes now grounded, the company is scrambling to correct errors and get them recertified for flight.
Unfortunately for the company and shareholders, certification doesn’t look to be coming this summer.
More Than 5,000 Planes Grounded or On Hold
Boeing had hundreds of 737 Max planes in operation before groundings were enforced. The company has also halted production, putting 5,012 orders on hold. The cease of production lead to a 21% decline in revenue in the previous quarter. Boeing has also invested around $1 billion in software fixes that it hopes will lead to recertification.
Even when the planes do eventually end up back in the air, the brand damage will be long lasting. There are now questions surrounding how the 737 Max was originally certified. International aviation regulators often follow the lead of the U.S. Federal Aviation Administration (FAA). It was discovered during investigations that the FAA had allowed Boeing to self-certify some of its own safety features.
The Department of Transport Inspector General spoke directly about this issue, saying in April that “Confidence in the FAA as the gold standard in aviation safety has been shaken.”
Any delay in international certification will come at massive cost to Boeing. 80% of its currently grounded 737 Max jets are operated by airlines outside of the United States. Even when the FAA approves the jets for flight again, there could be significant delays as international equivalents go through their own safety tests.
What This Means for Boeing Investors Moving Forward
Investors who purchased Boeing shares in 2019 will be feeling the pinch. At the current stock price, Boeing is only up 4.61% since January. The S&P 500 index has gained 12.17% in the same period.
Stock still pays a 2.44% dividend yield at $2.06 per share. However, continued losses from the 737 Max could force the company to lower its dividend. Even if there’s short term pain for this stock, it is likely that it will rebound once planes are allowed back into service.
There’s a lot of speculation in a bet on Boeing, but investors who buy while it’s down could enjoy significant growth on the upside.