Boeing is in a rare crisis because of serious quality problems with its 737 Max 9 jet. On Tuesday, a report published by Wells Fargo worsened the dilemma. Boeing's stock price fell sharply on Tuesday after the release of the report, titled "FAA audit opens up new dilemma." As of closing, Boeing's stock price fell nearly 8%.
Wells Fargo pointed out that Boeing has had quality control and engineering problems for years, and after the 737 Max partially disintegrated during a flight, the FAA is unlikely to end its investigation of Boeing without obtaining major findings.
The Wall Street agency added that given Boeing's recent performance and the aviation regulator's investigation, it is difficult for Boeing not to be affected. A further risk is that the aviation authority's investigation may not be limited to the 737 Max, but may expand to other models that share common parts.
Wells Fargo believes this will significantly hit Boeing's ability to produce and deliver. The bank has downgraded Boeing stock to "equal weight" from "overweight."
Many aircraft are affected
On January 5, a Boeing 737 Max aircraft serving Alaska Airlines had an accident in flight. The door plug that was supposed to cover the emergency exit on the side of the aircraft burst, causing a large hole in the side of the aircraft. The huge amount of decompression caused high-speed airflow in the cabin and tore the head restraints on the seats.
Subsequently, the United States announced the grounding of 171 Boeing 737 Max aircraft. Boeing said it would actively cooperate with the FAA and the U.S. Transportation Safety Board's investigations.
Following the Wells Fargo report, Boeing added on Tuesday that it would appoint retired U.S. Navy Adm. Kirkland H. Donald as the head of an external expert panel to conduct a thorough review of Boeing's commercial aircraft quality management system.
In addition, Boeing is seeking oversight from its major customer Ryanair, requesting it to send additional engineers to oversee quality inspections of Boeing aircraft on the ground.
Ryanair CEO Michael O'Leary responded that Boeing is expected to experience delivery delays and affect Ryanair's capacity. He said he did not have complete confidence in Boeing's quality control process, but everything is slowly getting better. The 12 aircraft delivered at the end of last year are currently the best quality batch, which gives him a certain degree of confidence.
The industry is still worried that Max's other two models, Max7 and Max10, will be affected, and they are waiting for approval to start commercial use. Analysts at Wells Fargo believe safety exemptions are needed for both planes, but that would be politically difficult to pass.
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