Boeing Co. (BA) - Get Report shares extended declines Tuesday after analysts at Barclays downgraded their rating on the stock to 'equalweight', arguing that 737 MAX production rates are likely to take longer to return to levels seen before the March Air Ethiopia disaster that killed 157 people and triggered the grounding of the flagship aircraft.
Barclays analyst David Strauss noted data suggesting nearly a fifth of travelers surveyed by the bank said that aircraft type was "very important" in flight selection, with another 30% saying it was "somewhat important", as his team cut its price target for Boeing shares to $367.00 from $412.00. More than half, the polled showed, would chose a different plane than the MAX when selecting flights, suggesting an extended period of concern for aircraft's useage rate once its grounding has been lifted and production rates accelerate.
"Our forecast reflects that MAX deliveries resume in Q4 with Boeing accumulating ~300 aircraft in storage while production only gradually increases beyond this to (57 per month) by early 2021," Strauss wrote. "We think the production rate recovery will be slower to come through than anticipated as we believe the airlines are unlikely to take aircraft as quickly as prior to the grounding."
Boeing shares were marked 1.75% lower Tuesday at $365.50 each, a move that would extend the stock's decline since the Ethiopian Airlines crash on March 10 to around 13%.
"What we found is that while 39$ of respondents said they would fly on the MAX within a few months of its re-entry into service, a higher 44$ would wait a year or more," Barclays wrote. "Meanwhile, if given the choice between a 737 MAX and another aircraft type on otherwise identical flights, 52$ would choose the other aircraft type while the rest were mostly undecided."
Last month, Boeing posted weaker-than-expected first quarter earnings and pulled its earnings guidance for the rest of the year until it has clarity on the fate of its 737 MAX program following the grounding of the flagship aircraft.
Boeing also said it would pause its stock buyback program, which had taken down $2.3 billion in shares over the first quarter, and would issue fresh earnings guidance "at a future date" as it deals with the grounding of more than 300 737 MAX planes following last month's Ethiopia Airlines crash and a similar Lion Air tragedy last year in Indonesia.
Boeing said it shipped 89 737 MAX planes for the quarter, down from 132 over the same period last year, adding that commercial airplane operating margins narrowed 100 basis point to 9.9% as division revenues came in at $11.8 billion. Overall company inventories rose by 4.47% from the end of last year to $65.369 billion.
Boeing said earlier this month that the preliminary report into the cause of Ethiopian Airlines Flight 302's fatal crash, which killed all 157 passengers on board on March 11, as well as the Lion Air 610 disaster in Indonesia in early October, which took the lives of 189 people, were caused by activation of the Maneuvering Characteristics Augmentation System, or MCAS, in response to "erroneous angle of attack information" from a broken sensor.
Boeing vowed to correct the cause of the tragic incidents while recognizing the "devastation of the families and friends of the loved ones who perished."
The FAA said it would "evaluate aspects of the 737 MAX automated flight control system, including its design and pilots' interaction with the system, to determine its compliance with all applicable regulations and to identify future enhancements that might be needed."