Boeing Stock Drops After Continued Bad News for Its 737 Jets

(Bloomberg) -- Boeing Co. dropped after weak deliveries for its 737 jetliner compounded a troubling report about a safety feature linked to a deadly crash in Indonesia last month.

Low October shipments of the 737 put Boeing at risk of missing annual delivery targets for its largest source of profit as the planemaker works to ease parts shortages that have snarled production. The company has been relying on revenue gains from faster output of the narrow-body jet to help ease financial strain from introducing its newest wide-body aircraft, the 777X.

Boeing will need to deliver 72 of its single-aisle workhorse in November and again in December to reach its planned build rate, Bloomberg Intelligence analyst George Ferguson said in a report to clients Tuesday. Boeing shipped just 43 last month. The company also needs to speed deliveries of its high-margin Max planes, “which affect profit disproportionately,” Ferguson said.

The shares dropped 2.4 percent to $348.63 at 3:26 p.m. in New York, the most in the Dow Jones Industrial Average. The stock had climbed 21 percent this year through Monday.

The Max has accounted for 37 percent of all 737 deliveries this year, trailing Boeing’s goal of 40 to 45 percent. The company had warned of a weak October performance, saying deliveries would pick up in the rest of the year.

New System

The deliveries data came a day after Bloomberg News reported that U.S. pilot unions said they hadn’t been notified or properly trained on a new safety system for the Max. The system, which wasn’t on earlier versions of the popular 737, is a focal point of investigators probing the Oct. 29 crash of Lion Air Flight 610. That plane plunged into the Java Sea, killing 189 people.

“The bottom line here is the 737 Max is safe,” Boeing Chief Executive Officer Dennis Muilenburg said Tuesday on Fox Business Network. “This airplane went through thousands of hours of tests and evaluations, certification, working with the pilots, and we’ve been very transparent on providing information and being fully cooperative on the investigative activity.”

A union bulletin to pilots at American Airlines Group Inc. said the company hadn’t provided details about the system with its documentation about the plane. “This is the first description you, as 737 pilots, have seen,” the Allied Pilots Association dispatch said. Southwest Airlines Co. pilots expressed similar concerns.

The Maneuvering Characteristics Augmentation System in limited instances will lower the nose of the 737 Max if the airplane is close to an aerodynamic stall even if pilots are manually operating controls. Indonesian authorities suspect faulty sensor readings may have caused the Lion Air jet’s computers to repeatedly press its nose downward before the plane accelerated into a final dive into the sea.

Key Information

“The crew may have been hampered in their efforts to understand the airplane’s behavior, and regain control, by the fact that they were missing a key piece of information -- the existence of an automatic system that could adjust the trim, even when the airplane’s autopilot was switched off,” Douglas Harned, an analyst at Bernstein Research, said in a note to clients.

Boeing and regulators have underscored the steps pilot can take to disable the pitch-trim system, as it’s known, in bulletins to 737 Max operators over the past week. Because the safety system is software-based, it could be updated relatively easily if regulators and the manufacturer determine that’s the best course.

Such a fix would be much less disruptive for airlines and Boeing than the three-month grounding that halted the planemaker’s 787 Dreamliner flights in 2013.

“Because the Max is a derivative aircraft, we doubt that this is a difficult-to-correct technical issue as the battery fire early in the 787’s life, appeared to be,” Cowen analyst Cai von Rumohr said in a note.

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