Boeing Co. (BA) - Get Report shares slumped to the lowest level in more than a year Tuesday after the company said it doesn't expect the Federal Aviation Administration to clear the grounded 737 MAX for a return to service until the summer.
CNBC first reported Tuesday that Boeing expects the FAA to sign off on the plane's return, once software and training issues are addressed, in June or July of this year, months later than the company's stated objective.
"We are informing our customers and suppliers that we are currently estimating that the ungrounding of the 737 MAX will begin during mid-2020," the company said in a statement. "This updated estimate is informed by our experience to date with the certification process. It is subject to our ongoing attempts to address known schedule risks and further developments that may arise in connection with the certification process."
"It also accounts for the rigorous scrutiny that regulatory authorities are rightly applying at every step of their review of the 737 MAX's flight control system and the Joint Operations Evaluation Board process which determines pilot training requirements," the statement added.
Boeing shares were marked 5.53% lower in Tuesday afternoon trading to change hands at $306.23 each, the lowest since December 2018 and a move that would leave the stock with a six-month decline of around 16.9%. Shares were then suspended from trading by the NYSE.
The declines followed earlier reports that the embattled planemaker could borrow as much as $10 billion to offset the financial impact of its grounded 737 MAX aircraft.
Bloomberg reported Boeing is close to agreeing a two-year credit facility with a group of banks lead by Citigroup, while CNBC reported the borrowing commitment could be as high as $10 billion, a figure that would largely match the planemaker's estimate for costs linked to the 737 MAX's two fatal crashes in 2017 and 2018 and the aircraft's subsequent grounding by world aviation authorities shortly after.
Boeing is also likely to book a significant MAX-related charge as part of its fourth quarter earnings report, scheduled for January 29, after it detailed the weakest annual net aircraft orders in more than two decades last week, noting cancellations and conversions put the total at just 54 aircraft, compared to just under 900 across the whole of 2018.
"We believe new CEO (David) Calhoun has every reason to take a very conservative view on the MAX outlook and the 2020 guidance. Clearly for BA management one of the key lessons of 2019 is the risk associated with overly optimistic assumptions," said Canaccord Genuity analyst Ken Herbert, who cut his price target on Boeing by $20, to $350 a share, and left his 'hold' rating unchanged.
"Specifically, we now expect a charge of at least $5 billion in Q4/19 associated with the MAX," he added. "We expect management to take a very conservative view on customer concession costs (and) also believe that with the extended grounding, there is still substantial uncertainty around the ultimate costs to Boeing for the grounding."
Boeing has temporarily suspended MAX production at its Renton, Washington facility, and reports Reuters suggest the FAA may not approve the plane's return to service until March or April.
Some of its biggest customers, meanwhile, such as Southwest Airlines (LUV) - Get Report and American Airlines (AAL) - Get Report, have extended the suspension of 737 jets in their fleet until at least June.