Boeing (BA) shares experienced a decline on Tuesday due to news about 737 Max deliveries in China and an analyst downgrade impacting the stock. According to the Wall Street Journal, China Southern Airlines plans to intensify safety inspections for new Boeing 737 Max planes, expected to be delivered this month. The airline’s order reportedly involves a different version of the 737 Max than the grounded 737 Max 9 model, subject to safety inspections after an Alaskan Airlines (ALK) jet experienced a fuselage panel blowout on Jan. 5.
This decision could potentially delay the entry into service for the jets scheduled for delivery to China this month. Chinese authorities have mandated safety inspections for all 737 Max aircraft operating in the country. Although China-based airlines currently do not own any 737 Max 9s, the duration of the new inspection protocols and their impact on deliveries remain unclear.
The incident involving Alaska Air ended with a safe landing and minor injuries after the jet’s cabin decompressed during flight. The affected panel was identified as a plug panel used in 737 Max 9s to cover an emergency exit door in smaller versions of the aircraft.
Following the Federal Aviation Administration’s (FAA) order on Jan. 6 for safety inspections of plug panels in all U.S. 737 Max 9 aircraft, Boeing announced additional inspections on its 737 production line. The company also dispatched staff to assess the manufacturing of door panels and other components at Spirit Aerosytems (SPR), a supplier for the 737 Max 9 fuselage.
Given China’s significance as a market, constituting 20% of global aircraft demand in the next two decades, Boeing’s 737 Max models play a crucial role in reviving the company’s business in the country. In response to these developments, Wells Fargo downgraded Boeing stock on Tuesday, expressing concerns about increased delivery risks. The firm lowered Boeing’s price target from $280 to $225. Boeing’s stock declined by 7.9% on Tuesday, leading losses among Dow Jones industrial stocks, and experienced a notable 12.6% drop the previous week following the Alaska Airlines incident and FAA inspection process.
As a result of last week’s decline, Boeing triggered the automatic sell rule by falling more than 8% below a cup-base buy point established in December. The stock of supplier Spirit also dropped 4.4% on Tuesday after experiencing a 3.5% decline in premarket trade.
