What Boeing’s troubles tell us about investing: it’s the end of an era

It happens. “Lightning” can strike the same plane twice, as we have seen with the tragic loss of two Boeing 737 MAX 8 airliners in the last four months, with, more importantly, 346 souls. 

China was quite right to ground the aircraft immediately, along with a handful of others. They were followed by many of the rest of the world’s influential airline regulators – indeed, it should have happened after the last unfortunate crash; to not do so after two seems careless. One notable exception was the US Federal Aviation Administration, which usually has an itchy trigger finger, though its hand was forced as passengers refused to fly on the aircraft. Boeing has since grounded the entire fleet of 737 Max planes.

After the first crash, it was guessed that a poorly maintained instrument combined with a software glitch put the aircraft into a dangerous “nose-down attitude”. It seemed an exception, so after a quick “pilot fix”, the authorities allowed the aircraft to fly while a permanent rewrite of the system was carried out. We don’t know the reason for this latest crash, but both happened to the same new aircraft type, with experienced pilots, in the same phase of flight, and apparently with a similar loss of vertical control.

Boeing makes fine aircraft and about 10,500 of the 737 model have been sold, with only 211 hull-loss accidents. The MAX 8 is a leading-edge version and Boeing has orders for another 5,000 aircraft.

It seems callous to look at Boeing’s stock price at this time but it cost Boeing shares 6 per cent on the first crash in October, which was recovered when the problems seemed a one-off. A grounding of the 376 aircraft in service will cost Boeing a lot more, so the market immediately priced the share off by 12 per cent. This descent by Boeing has led to the Dow Jones Industrial Index underperforming the S&P 500 by the most in 10 years.