Proactive Investors - Boeing Co (NYSE:BA, ETR:BCO) shares moved lower in early trade on Thursday after the US Federal Aviation Administration (FAA) capped production of its 737 Max 9s following a mid-flight door plug blowout earlier this month.
The FAA said the planes, which had been grounded since the incident, could re-enter service but that the airplane manufacturer would not be allowed to expand production of the Max as questions over the manufacturer’s quality control procedures remain following the incident.
"We will not agree to any request from Boeing for an expansion in production or approve additional production lines for the 737 Max until we are satisfied that the quality control issues uncovered during this process are resolved," the FAA’s Mike Whitaker commented.
This marks a blow for the manufacturer, given the 737 Max family of jets incorporates Boeing’s best-selling models, such as the Max 8, which is widely used in Europe.
“This won't be back to business as usual for Boeing,” Whitaker added.
Boeing had targeted monthly production of 38 Max jets at the end of 2023, with this due to rise to 42 by February 2024, 52.5 a year later and 57.7 come October 2025.
Grounded 737 Max 9s, which are largely based in the US and operated by Alaska Air Group (NYSE:ALK) and United Airlines (NASDAQ:UAL) Holdings Inc (NASDAQ:UAL), will be allowed to return to service once an FAA inspection and maintenance process has been carried out.
“The exhaustive, enhanced review our team completed after several weeks of information gathering gives me and the FAA confidence to proceed to the inspection and maintenance phase,” Whitaker said.
Alaska Air and United have subsequently laid out plans to return the jets to service in the coming days.
Boeing downgraded by Bank of America (NYSE:BAC) analysts
Boeing stock, which traded 7% lower at US$199 in early trade Thursday, was also downgraded by Bank of America analysts on their expectation the FAA’s ruling will delay the ramp up of 737 Max 9 production by roughly a year.
The analysts lowered their rating to ‘Neutral’ and reduced their price target to US$225 from US$255.
However, they believe the forced slowdown will ultimately benefit Boeing in the long term.
“To be blunt, the current situation is not tenable,” they wrote in a note to clients.
“The slowdown will enable Boeing, its suppliers, and regulators to focus on quality assurance and best-in-class production practices without the stress of ramping production in the near term. In our view, the resulting stronger production system should ultimately allow Boeing to ramp up to higher rates smoothly.”
Updated with analyst comments, share price movement