Boeing Co may have to book billions of dollars in additional charges, two brokerages said on Monday, following the latest developments around the planemaker’s grounded 737 MAX jet that call into question the timing of the aircraft’s return to service.
Credit Suisse and UBS downgraded the stock after reports on Friday showed internal messages between two Boeing employees stating that the plane’s anti-stall software system behaved erratically during testing before the aircraft entered service.
The new revelations pose fresh challenges for Boeing, which is reeling under pressure after two fatal crashes forced the company to ground the 737 MAX planes and book billions of dollars in losses.
Boeing shares slipped 4 percent in morning trading in New York, adding to their 18 percent decline since the second deadly crash of the popular single-aisle jet in Ethiopia.
Although Boeing continued producing the planes, albeit at a lower rate, the brokerages said there is an increasing possibility that the company may have to halt production altogether.
“We see increasing risk that the Federal Aviation Administration won’t follow through with a certification flight in November and lift the emergency grounding order in December,” UBS analyst Myles Walton said, downgrading the stock to “neutral” from “buy”.
Walton cut his target price on Boeing’s shares by $95 to $375, citing an increase in the “likelihood of a pause on the 737 MAX production system” due to a delay in the jet’s return.
Boeing’s shares fell nearly seven percent on Friday after Reuters news agency first reported the news, which prompted a demand by United States regulators for an immediate explanation and a new call in Congress for the company to shake up its management.
The company on Sunday expressed regret over the messages, and said it was still investigating what they meant.
Credit Suisse, which had stuck to its “outperform” rating for Boeing since July 2017, downgraded the stock to “neutral” and cut its target price by $93 to $323 – some six percent below Boeing’s Friday closing price of $344.
With the stoppage of production and the delay in MAX’s return to service likely to last until February 2020, the US planemaker could record $3.2bn in charges over four months on top of a $5.6bn charge taken so far, analyst Robert Spingarn said.
“[Boeing] could be forced to furlough or fire a portion of its MAX workforce. This could result in lost labour force productivity when/if the MAX does return to service. We have seen the consequences of such events in shipbuilding; it can be ugly,” said Spingarn.
UBS also downgraded Boeing’s biggest supplier, Spirit AeroSystems, to “neutral” from “buy” and cut its target price on the stock to $88 from $92, citing possible production cuts.