Boeing Faces Delivery Setback as Defect Casts Doubt on 737 Max
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Boeing Faces Delivery Setback as Defect Casts Doubt on 737 Max

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Héctor Soto By Héctor Soto | Journalist & Industry Analyst - Fri, 08/25/2023 - 14:58

The Boeing 737 Max has encountered a fresh challenge. The company issued a warning about potential delays in the delivery schedule of its 737 Max jets, which caused Boeing’s shares to dip by 4%. The setback is attributed to a quality issue linked to its key supplier, Spirit AeroSystems. 

The issue at hand revolves around irregularly shaped holes found in the aft pressure bulkhead of certain planes. This crucial component seals off the rear of the aircraft's pressurized cabin, reports Reuters. The problematic parts have been traced back to Spirit AeroSystems, a significant contributor to Boeing's supply chain.

While the extent of the impact is still being assessed, concerns have arisen about Boeing's ability to meet its annual delivery target of 450 planes in the 737 model. Although the company has not confirmed any alterations to its target, Wall Street analysts have indicated that achieving this goal might now be in jeopardy due to the delay.

Boeing has conveyed that the defect appears to affect a specific subset of its popular 737 Max 8 model, and it is evaluating whether older 737 Next Generation aircraft might also be affected. Not all 737 fuselages will be impacted, as Spirit AeroSystems relies on multiple suppliers for the aft pressure bulkhead.

Financial implications are uncertain at this time. Analysts predict that rectifying the issue and ensuring the aircraft's airworthiness could potentially take several weeks for the completed planes. This delay could potentially result in additional costs and production disruptions for Boeing.

Comparisons have emerged with rival Airbus, as Boeing's ratio of enterprise value to sales for the next 12 months stands at 2, while Airbus maintains a ratio of 1.3, based on Refinitiv data. This disparity suggests that Boeing's stock might be perceived as a less attractive investment opportunity compared to its competitor.

For Spirit AeroSystems, this incident compounds an already challenging year. The company had previously suffered financial setbacks due to another quality issue and endured bleak financial results owing to a worker strike earlier in the year.

As of the latest trading session, Boeing's shares were priced at US$219.50, a notable drop from Wall Street's median price target of US$254.70. This is a decline from the US$238.50 mark observed three months ago.

In the coming weeks, stakeholders will closely monitor Boeing's efforts to address the quality issue and the subsequent impacts on its delivery goals and financial outlook.

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