Boeing Stock Drops After Continued Bad News for Its 737 Jets

(Bloomberg) -- Boeing Co. dropped after weak deliveries for its 737 jetliner, the company’s largest source of profit, compounded a troubling report about an obscure 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 the plane as it works to ease parts shortages that have snarled production. The Chicago-based company has been relying on profit reaped from faster output of the narrow-body jet to ease financial strain from introducing its newest wide-body aircraft, the 777X.

Boeing will need to deliver 72 of the single-aisle plane in November as well as 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,” he said. The Max has accounted for 37 percent of all 737 deliveries this year, trailing Boeing’s target of 40 to 45 percent.

The shares dropped 1.6 percent to $351.34 at 12:02 p.m. in New York, the most in the Dow Jones Industrial Average. The stock had climbed 21 percent this year through Monday.

Update Notification

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 on 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, which crashed 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 bulletin from the Allied Pilots Association 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,” it said. Southwest Airlines Co. pilots expressed similar concerns.

The Maneuvering Characteristics Augmentation System in some instances will lower the nose of the 737 Max if the airplane is close to an aerodynamic stall. It only occurs if pilots have switched off automation and 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.

“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 Tuesday.

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