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Boeing shares down 10 percent after second 737 MAX crash

Flight ET 302 plane crash
Red Cross team work at the crash site of Ethiopia Airlines near Bishoftu, a town some 60 kilometres southeast of Addis Ababa, Ethiopia, on March 10, 2019. PHOTO | AFP 

Shares of Boeing Co slid 10 percent on Monday after China, Indonesia and Ethiopia ordered airlines to ground their Boeing 737 MAX 8 planes following the second deadly crash involving the jet in just five months.

The losses put the stock on course for its biggest daily fall in nearly two decades, halting a surge that has seen Boeing’s market value triple in just over three years to a record high of $446 per share.

Spreads on Boeing’s bonds were also wider in relatively light trading on Monday morning, according to capital markets publication IFR.

A Nairobi-bound Boeing 737 MAX 8 operated by Ethiopian Airlines crashed minutes after takeoff from Addis Ababa on Sunday, killing all 157 on board. The same model, flown by Lion Air, crashed off the coast of Indonesia in October, killing all 189 on board.

Boeing said on Monday the investigation into the Ethiopian Airlines crash is in its early stages and there was no need to issue new guidance to operators of its 737 MAX 8 aircraft based on the information it has so far.

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“Boeing is the big story when it comes to the Dow industrials,” said Randy Frederick, vice president of trading and derivatives with brokerage Charles Schwab.

“(It) is the most expensive stock on the index (and) without any question is going to be the theme for the Dow index today ... but I don’t see a spillover to any other indexes except airlines.”

Wall Street has been overwhelmingly bullish on Boeing - 19 of the 24 brokerages covering the stock rate it “buy” or higher, while five have a “hold” rating.

It is the best performer in the Dow Jones Industrial Average so far this year, up 31 pct compared with a 9.1 percent gain in the index. The decline on Monday was a major factor in pulling the index lower.

Morgan Stanley analyst Rajeev Lalwani said there would be concerns of disruption around safety, production, groundings, and costs, but that those should all be manageable longer-term.

He said he was not changing the bank’s positive “overweight” recommendation on Boeing shares, and that any corrective action the company has to take on its best-selling passenger plane will likely prove a longer-term buying opportunity.

Investigators have found the black box from the fatal crash with both the cockpit voice recorder and digital flight data, Ethiopian state TV reported on Monday, which should shed light on the cause of the crash.

Earlier in the day, China’s aviation regulator grounded nearly 100 Boeing 737 MAX 8 aircraft operated by its airlines after the crash.

Boeing’s shares lost 12 percent in the weeks following the Lion Air crash last year, but have more than recouped those declines. They were down 9.6 percent at $381.72 soon after the opening bell, erasing about $32 billion from the company’s market value.

Dallas-based Southwest Airlines Co - the biggest operator of the MAX 8 fell just under 2 percent to $50.81, while American Airlines Group Inc which has 24 MAX 8 jets, was up 0.4 percent at $32.05.

Southwest and American said overnight they remained fully confident in the aircraft and were closely monitoring the investigation.

Shares of rival Airbus SE were up 0.9 percent in Paris.

Boeing delivered 806 aircraft last year, missing its target by four jets, but still retaining the title of the world’s biggest planemaker for the seventh straight year. European rival Airbus delivered 800 planes in 2018.

The 737 MAX 8 uses LEAP-1B engines made by CFM International, a joint venture of General Electric Co and Safran SA. Shares in Safran also fell 1.6 percent on Monday.

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