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Why Boeing Stock Just Slipped

By Rich Smith - Feb 25, 2021 at 3:49PM

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Engines are blowing up on Boeing planes, and that could be bad news.

What happened

Boeing (BA -5.07%) stock soared 8% yesterday on the back of positive expert and press commentary, praising the company for its "speedy response" and efforts to cooperate with air travel safety regulators investigating the failure of two engines aboard Boeing-built airplanes over the weekend.

Today, Boeing stock is going back down -- 4.5% as of 3 p.m. EST -- and I think you can trace the price movement back to the newspapers this time as well.

Cartoon character sliding down a red arrow

Image source: Getty Images.

So what

Yesterday, if you recall, the talk was all about how the failures of engines built by Raytheon Technologies couldn't really be the fault of Boeing, which only installed the supplier's engines on its own airplanes. If fingers were to be wagged, they should be wagged at Raytheon -- or at United Airlines, for failing to maintain its airplane properly.

But in early reporting this morning, The Wall Street Journal cites Federal Aviation Administration (FAA) documents indicating that Boeing was already aware of potential problems with the engines even before this past weekend, and in fact had been "planning to strengthen protective engine covers on its 777 jets [for] months" -- but never quite got around to doing so.  

And that kind of makes it sound like Boeing does bear some of the blame here.

As the Journal reports, "aviation-safety experts and regulators have been growing increasingly concerned about whether engine covers are robust enough to withstand the impact of a fan blade's breaking off and shooting outward during flights," after a series of failures, similar to those of the past weekend, were observed in 2018.

Now what

So how bad is this news for Boeing, stock, really? Peering into my crystal ball, I think the company still gets points for being forthcoming and cooperative with the FAA. Moreover, the Journal concludes its piece by quoting former FAA accident investigation division director Jeffrey Guzzetti, who said, "There was never a requirement to consider [the potential for a broken engine fan blade shooting forward and damaging the front part of the engine covers] before -- it just never really happened that much."

If that's the upshot of this story, I predict Boeing will have to make some design changes on the 777, but it was planning to do that anyway, and probably won't be punished beyond that. Long story short, I still think Boeing's going to come out of this just fine.

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