Shares of Boeing (NYSE:BA) fell more than 10% Monday morning following an Ethiopian Airlines crash over the weekend, the second fatal incident involving Boeing's new 737 Max 8 in the last six months. The crash raises troubling questions about Boeing's newest model, and caused regulators in China and elsewhere to ground the jet pending further review.
An Ethiopian Airlines flight crashed shortly after takeoff from Addis Ababa on Sunday, killing all 157 people on board. While the investigation into the crash is still in its early stages, and it is too soon to determine what happened, the incident looks similar to a Lion Air 737 Max 8 crash last October off the coast of Indonesia that killed all 189 people on board.
Shares of Boeing are up more than 200% over the past five years, thanks in large part to the success of its commercial jet operation, and the 737 has been a crown jewel of that commercial portfolio. Boeing as of Dec. 31 had a backlog of more than 4,700 737s.
No matter what the investigation into this incident determines, Boeing faces reputational risk in having two accidents occur in such a short time. And if it turns out there is some design flaw or serious issue with the 737, much of that order book could be at risk.
It's worth noting that Boeing's stock experienced a similar decline following the Lion Air crash, only to quickly recover. The similarities between the two crashes, and the implications that there could be a bigger issue for Boeing's 737 Max 8, would suggest a recovery might not occur so quickly this time, but investors should be mindful of the dangers of knee-jerk reactions before all the facts are known.
Investors should also monitor Southwest Airlines (NYSE:LUV), a current Max 8 operator that plans to add at least 225 more to its fleet by 2025. Any issues with the plane that cannot be easily resolved could complicate Southwest's plans to grow and operate more efficiently.