The aerospace giant has suspended certification flight testing on its new 777X jet.
Shares of Boeing (BA -4.13%) were trading more than 4% lower as of 1:45 p.m. ET Tuesday after news broke that the aerospace and defense giant had suspended flight tests of its 777X airplane.
Big news out of Boeing
As reported by aviation news service The Air Current, Boeing grounded the test fleet for its latest widebody airplane after routine inspections of one of the jets found that a key mounting component for one of its engines had failed. This is disappointing for investors for multiple reasons.
First, it’s another indication of ongoing quality issues at Boeing. Second, it raised the prospect of a delay in the production and deliveries of the 777X. Third, it could potentially have cash implications for the company — the last thing it needs right now. Finally, customer concerns about the new plane could lead to a delay in 777X orders.
The shift in tone around the program presents a sharp contrast to Boeing’s outlook just a few weeks ago. On the company’s Q2 earnings call, now-former CEO Dave Calhoun happily noted that in July, Boeing had “received type inspection authorization, TIA, for the 777-9 and began cert flight testing with FAA personnel onboard the aircraft. Our team has put the 777-9 test fleet through more than 1,200 flights, 3,500 flight hours across a wide range of regions and climate condition.”
What it means to Boeing investors
Tuesday’s stock sell-off may have been an excessive knee-jerk reaction because it is unclear whether there will be any significant fallout from the issue or the test flight pause. Still, the market’s adverse response illustrates the challenges ahead for new CEO Kelly Ortberg as he attempts to restore confidence in the company.
Image source: Getty Images.
It’s not uncommon for new airplanes to have parts redesigned and replaced during development, and the key decision-makers in that process are at Boeing, the Federal Aviation Administration, and the airlines. Still, right now, investors don’t want to hear about more quality issues at Boeing.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
