Wall Street braces for challenging Boeing earnings amid CEO scrutiny

Boeing, grappling with the aftermath of the January 5 Alaska Airlines incident involving its 737 MAX 9 planes, has resumed flights, but the repercussions are anticipated to cast a shadow over the company’s financial outlook.

Both Alaska and United Airlines recently recommenced MAX 9 services after a three-week grounding prompted by an emergency landing due to a panel blowout, intensifying scrutiny on Boeing and its CEO, David Calhoun.

Investors are awaiting Boeing’s fourth-quarter results, scheduled for release on Wednesday, to assess the financial impact. Projections indicate another annual loss, with expectations of a withdrawal of commercial plane production targets central to the company’s medium-term financial strategy. The Alaska Airlines incident is anticipated to contribute to additional costs, including compensation for affected airlines, although these may not materialize until later in 2024, according to analysts.

Since the Alaska Airlines incident, Boeing’s shares have plummeted by nearly 18%, as investors anticipate a more stringent regulatory environment, potentially leading to a slowdown in plane deliveries. Bank of America analysts recently downgraded Boeing, citing the anticipation of “materially increased regulatory scrutiny” from the Federal Aviation Administration (FAA).

The incident has raised questions about Boeing’s leadership, with CEO David Calhoun facing criticism from airline customers. Calhoun recently met with lawmakers on Capitol Hill, and industry experts predict management changes as the company grapples with the need for a demonstrable shift in its operations.

The Alaska Airlines episode marks Boeing’s most significant operational challenge since the 737 MAX 8 crashes in 2018 and 2019. While there were no serious injuries, the National Transportation Safety Board (NTSB) emphasizes the potential catastrophic nature of the incident. The FAA has criticized Boeing’s quality assurances as “unacceptable.”

Analysts don’t expect Boeing to reveal the root causes of the January incident in the upcoming earnings report. However, they are hopeful for more details on the company’s operational changes. The NTSB is expected to provide an update on the ongoing probe next week, shedding light on the potential causes.

The FAA’s freeze on Boeing’s production level for the MAX 9 complicates the company’s plans to increase production in the coming years. With potential delays in FAA certification for other MAX models, analysts express doubt about achieving the previously targeted production levels. This has led to increased investor pessimism and calls for Boeing to clarify its production plans, prompting speculation about a potential leadership change.

Despite speculation about a leadership change, some industry experts, including Morningstar’s Nicolas Owens, do not anticipate a shift in management during this crisis mode. Boeing’s ability to navigate the challenges ahead, including addressing manufacturing disruptions and reassessing production targets, remains a focal point for investors and industry observers alike.