By Claudia Assis, MarketWatch
As Boeing Co. works on damage control, Wall Street’s best-case scenarios for the aircraft maker is for a relatively short 737 Max grounding, no lengthy delivery halts, and no major redesign for the plane, the best-selling commercial jet of all time.
Hundreds of Boeing /zigman2/quotes/208579720/composite BA +1.01% Max jets around the world are grounded after a second fatal crash in less than five months involving one of the models. U.S. and Canadian aviation authorities on Wednesday grounded the planes, a day after several major aviation agencies and airlines in Europe, the Middle East and Asia did so.
Investors and analysts are still evaluating the financial implications for Boeing, assessing the importance of the plane for its bottom line, and reviewing the company’s deep cash reserves.
Boeing shares, meanwhile, took another hit on Thursday, and have lost more than 11% this week. The fallout from the crashes and grounding has wiped out nearly $27 billion of Boeing’s market capitalization.
“At this time, we see the best-case scenario for (Boeing) as a six- to eight-week grounding,” said Ken Herbert, an analyst at Canaccord Genuity.
The global groundings came after a Max 8 jetliner crashed in Ethiopia on Sunday, killing 157 people. In October, the same model was involved in a Lion Air crash that killed 189 people in Indonesia in eerily similar circumstances.
The company started working on a software upgrade soon after the first crash in October, and the upgrade is expected to be ready to go in a few weeks.
The upgrade’s installation itself is likely to be “relatively easy,” and cost a relatively paltry $500 million, Herbert said in a note.
The grounding could cost about $1 billion a month in lost free cash flow from delivery delays. The monthly bill could go up another $1 billion or so, depending on how much Boeing may have to reimburse airlines for the disruption, he said.
That of course assumes that the cause of two crashes is similar, which will take time to determine. Aviation safety experts have cautioned that plane crashes usually involve a combination of causes. The investigation into the Lion Air crash is not yet complete, although in that case the black boxes took weeks to be found. In Ethiopia, the black boxes were recovered shortly after the crash.
The U.S. Federal Aviation Administration late Wednesday moved to ground the Max fleet, citing new satellite evidence pointing to similarities between the two crashes. Transport Canada had moved to ground the Max a few hours earlier, citing the same data.
The Max accounts for more than a third of Boeing’s estimated revenue through the next five years, analysts at Goldman Sachs, led by Noah Poponak, said in a note this week. If the plane needs a major redesign due to a broader flaw, a fix would be costlier and lengthier, the analysts said.