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What's the Impact of Saturday's Crash on Boeing?

U.S. stocks opened higher  this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.75% and 0.8%, respectively, at 10:10 a.m. EDT.

The 777's first deadly crash: What impact for Boeing?
To what degree are markets and investors rational? In the wake of Saturday's spectacular crash at San Francisco International Airport, today's share performance of Dow component Boeing (NYSE: BA  ) could provide a case study.

Tragically, two young Chinese women died when a Boeing 777 long-haul airliner operated by Asiana Airlines landed short of the runway, breaking its tail section before skidding across the runway and catching fire. The remaining 289 passengers and 16 crew evacuated the plane safely before the flames tore through the fuselage.

The 777 is one of the workhorses of the commercial aviation industry. Boeing says it has delivered 888 passenger versions of the jet, nearly half of which are the 777-200ER, the variant which was involved in Saturday's accident. The 777 has been in operation since 1995, and this the first fatal crash on its record.

Evidence from the flight data recorder and the cockpit recorder indicate the plane was flying significantly below the recommended approach speed as it prepared to touch down. At present, there is nothing to suggest a mechanical failure occurred; rather, pilot error appears to be the likely explanation.

On that basis, the reaction in the shares today should be muted. That looks to be the case so far, with Boeing's stock down just 0.3% -- roughly 1 percentage point in underperformance relative to the S&P 500.

There is a precedent for this. Despite the grounding (now lifted) of Boeing's flagship 787 Dreamliner aircraft earlier this year due to a problem with its battery unit, shareholders haven't shown much fear of flight: Yes, the shares lagged the broad market through the beginning of March (see graph below), but they've taken off since then, with Boeing now the second-best performing Dow component, with a year-to-date price return through Friday of 38.2%.

BA Chart

BA data by YCharts.

As horrific as the footage of Saturday's crash may be, investors appear to be analyzing the situation rationally: So far, the evidence suggests that this accident, tragic as it was, was not Boeing's fault and ought not to damage the 777 franchise.

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Related Tickers

9/30/2016 5:01 PM
^DJI $18308.15 Up +164.70 +0.91%
^GSPC $2168.27 Up +17.14 +0.80%
S&P 500 INDEX CAPS Rating: No stars
BA $131.74 Up +0.71 +0.54%
Boeing CAPS Rating: ****