Boeing Co shares fell by the most in three years on Monday after China, Indonesia and Ethiopia ordered airlines to ground their 737 MAX 8 planes following the second deadly crash of one of the jets in just five months.
The drop - around 7 percent in late morning trade - wiped nearly $16 billion off Boeing’s market value, marking an abrupt reversal for a stock that had been the runaway top performer this year in the Dow Jones Industrial Average.
With a stock price near $400 a share, it was by far the largest drag on the price-weighted blue chip index on Monday.
A Nairobi-bound Boeing 737 MAX 8 operated by Ethiopian Airlines crashed minutes after takeoff from the country’s capital Addis Ababa on Sunday, killing all 157 on board. The same model, flown by Lion Air, crashed off the coast of Indonesia in October, killing all 189 on board.
“The grounding of the 737 MAX by China, Indonesia, and Ethiopian are near-term reputational negatives for Boeing that could impact sales, particularly if the FAA follows suit and also grounds the plane,” Cai von Rumohr, analyst at Cowen & Co, said in a research note, referring to the U.S. Federal Aviation Administration.
Still, von Rumohr and other analysts said the accident should not pose a long-term risk to a stock that has delivered the richest total return among the 30 stocks in the Dow over the 10 years of the current bull market. Since U.S. stocks began rebounding from the financial crisis in March 2009, Boeing shares have delivered a total return, including reinvested dividends, of nearly 1,600 percent, four times the performance of the full index.
Indeed, many investors saw the initial drop in Boeing stock as an opportunity to pick up the shares at a sudden discount. After dropping by as much as 13.5 percent in the first 10 minutes of trading on Monday morning, by late morning they had recouped roughly half the loss and were down just 6.7 percent.
Spreads on Boeing’s bonds, a measure of the added compensation investors demand for owning its debt, were also wider, data from Refinitiv showed. Its credit default swaps, a form of insurance against a Boeing default, rose sharply in price, according to IHS Markit. The company has about $13.8 billion of bonds issued.
Boeing said on Monday the investigation into the Ethiopian Airlines crash is in its early stages and there was no need to issue new guidance to operators of its 737 MAX 8 aircraft based on the information it has so far.
Wall Street has been overwhelmingly bullish on Boeing - 19 of the 24 brokerages covering the stock rate it “buy” or higher, while five have a “hold” rating. No brokerage has had a sell rating on the stock since July 2017.
Even with Monday’s drop, it remained the Dow’s best performer so far this year with a gain of 21.6 percent compared with 9.45 percent for the full index.
Morgan Stanley analyst Rajeev Lalwani said there would be concerns about safety, production, groundings and costs, but that those should all be manageable longer-term.
He said he was not changing the bank’s positive “overweight” recommendation on Boeing shares, and that any corrective action the company has to take on its best-selling passenger plane will likely prove a longer-term buying opportunity.
Investigators have found the black box from the fatal crash with both the cockpit voice recorder and digital flight data, Ethiopian state TV reported on Monday, which should shed light on the cause of the crash.
Earlier in the day, China’s aviation regulator grounded nearly 100 Boeing 737 MAX 8 aircraft operated by its airlines after the crash.
Boeing’s shares lost 12 percent in the weeks following the Lion Air crash last year, but have more than recouped those declines.
Shares of Dallas-based Southwest Airlines Co - the biggest operator of the MAX 8 - fell 1.3 percent, while American Airlines Group Inc, which has 24 MAX 8 jets, was up 0.4 percent.
Southwest and American said overnight they remained fully confident in the aircraft and were closely monitoring the investigation.
Shares of Boeing’s European rival Airbus SE were up 1.3 percent in Paris.
Boeing delivered 806 aircraft last year, missing its target by four jets, but still retaining the title of the world’s biggest planemaker for the seventh straight year. European rival Airbus delivered 800 planes in 2018.
The 737 MAX 8 uses LEAP-1B engines made by CFM International, a joint venture of General Electric Co and Safran SA. Shares in Safran fell 1.7 percent on Monday.