Boeing (NYSE:BA) shares fell again on Thursday following the decision by the US Federal Aviation Administration (FAA) to suspend planned increases in production of the 737 Max, one of Boeing's key jet models.
Analysts noted that this freeze on output expansions has the potential to impact the company's growth trajectory and free cash flow in the coming periods.
The FAA's decision to halt production increases for the 737 Max suggests regulatory concerns or operational challenges that need to be addressed before expanding manufacturing capabilities.
Moreover, the stock selloff accelerated after Bank of America analysts moved to the sidelines in the aftermath of the Alaska Airlines incident, when the plug on 737 Max-9’s door was ejected from the fuselage mid-flight.
BA shares were down 3.7% in early New York trading on Thursday.
“The subsequent grounding and FAA mandated production rate freeze at current levels will likely prevent Boeing from reaching its 2025/2026 production, delivery, and FCF goals outlined during its 2022 investor day,” analysts said in a note.
“We expect the FAA ruling to delay BA’s 737 ramp by roughly a year. We move to the sidelines with our ratings on the shares, lowering it to a Neutral from a Buy.”
The price target on BA stock is lowered by $30 to $225 per share. However, despite the rating cut, analysts argue that the forced slowdown “will ultimately benefit Boeing in the long term.”
This is because the slowdown will enable the company and its suppliers to focus on “quality assurance and best-in-class production practices without the stress of ramping production in the near term.”
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