What happened
Shares of Boeing (BA -1.35%) fell 4.4% on Monday after the company announced it would cut 737 MAX aircraft production by nearly 20%, a clear indication that the ongoing issues surrounding that plane are not going to be resolved quickly.
So what
Boeing has been in crisis mode in the weeks since an Ethiopian Airlines 737 MAX 8 crashed a few minutes after takeoff, killing all 157 on board. It was the second 737 MAX fatal crash in a matter of months, following an October Lion Air tragedy that took 189 lives.
Boeing's 737 MAX. Image source: Boeing.
The 737 MAX is currently grounded, and deliveries are frozen. But there was still some hope among investors that Boeing could quickly release a software patch that would fix the issues that led to the crashes and allow deliveries to restart.
Boeing dashed those hopes after markets closed Friday when it said it would cut 737 production to 42 airplanes per month, down from 52, starting in mid-April. Following the announcement, Bank of America Merrill Lynch cut Boeing to a neutral from a buy, saying the grounding could last upward of nine months.
Now what
Boeing has appeared tone deaf at times as the crisis surrounding the 737 MAX has intensified, but cutting production is the right move. There will be a hit to 2019 earnings due to fewer-than-anticipated deliveries. But the company's priority at this point needs to be getting control of the situation and managing the reputational hit it has taken -- even if it means a short-term drag on profitability.
The smart bet remains that Boeing over time can fix the problems with the plane and that the 737 will be a commercial success, and the aerospace and defense giant has ample resources to cushion any and all financial penalties that arise from the 737's issues. Despite all those issues, Boeing shares are still up 16% year to date, and nearly 200% over the past three years.
I'm not ready to call a bottom on Boeing shares.
