The Uncertain Return of the 737 MAX 9

After a three-week grounding by the Federal Aviation Administration (FAA) due to an emergency door plug blowout on an Alaska Air flight, the 737 MAX 9 is finally back in service. However, the impact on Boeing's shares goes beyond the short delay in airline service and aircraft deliveries, creating a wave of uncertainty for investors.

Investors' Discomfort with Uncertainty

Uncertainty is an investor's worst nightmare. The incident involving the 737 MAX 9 door plug has added a significant amount of uncertainty to the equation, leaving investors concerned about the road ahead.

Initial Flights Resume

On Saturday, United Airlines Flight 1525 became the first United passenger flight on a Boeing MAX 9 since the grounding. Alaska Air had already completed its first post-grounding MAX 9 flight on January 26th. These initial flights signal a step towards normalcy.

Limited Impact on Deliveries and Production

Fortunately, the three-week delay is not expected to have a substantial impact on Boeing's 2024 aircraft deliveries or production. While airlines that had their fleets grounded will receive compensation, estimated at around $60 million according to Wall Street analysts, this amounts to only 1% of the projected 2024 free cash flow of $6 billion.

Shrinking Market Value and Investor Concerns

Despite the relatively minor financial impact, Boeing stocks have suffered a blow, declining approximately 17% since the grounding. This is in stark contrast to the 4% and 6% gains made by the S&P 500 and Nasdaq Composite over the same period. As a result, Boeing's market value has decreased by a staggering $26 billion. Clearly, investors are worried about more than just airline compensation.

FAA Scrutiny and Certification Challenges

The FAA's stance on expanding MAX production adds another layer of uncertainty. Until the agency is satisfied with Boeing's quality systems, production expansion from the current 38 jets per month to over 50 jets per month will be on hold. While it is possible for Boeing to proceed with added FAA oversight, investors are left with an undeniable sense of uncertainty. A slower production ramp-up also puts the estimates for free cash flow in 2025 and 2026 at risk.

Additionally, the FAA has yet to certify two other versions of the MAX: the shorter MAX 7 and the longer MAX 10. The impact of the grounding on the certification process remains unclear, further contributing to investors' concerns.

In conclusion, while the return of the 737 MAX 9 to service is a positive development, there are still significant uncertainties that loom over Boeing's future. Investors find themselves grappling with the consequences of the grounding and the potential ramifications for production, certification, and free cash flow in the coming years.

The State of Boeing's MAX 10 Orders

The demand for Boeing's MAX 7 and MAX 10 aircraft has been significant, with airlines ordering 391 and 1,180 units respectively. The MAX 8 and MAX 9 models have also garnered attention, with approximately 5,800 and 440 orders each, as per Boeing's commercial website.

However, United Airlines has recently expressed concerns over its MAX 10 orders due to the MAX 9 incident. Unfortunately, the airline has limited alternatives, as both Boeing and Airbus currently have a backlog of over a decade's worth of single-aisle jet production. These uncertainties are causing further unease among customers, an unfavorable situation for Boeing investors.

The MAX 10 faces competition from the Airbus A321neo, which has enjoyed greater commercial success thus far. Airlines have placed orders for nearly 6,200 A321neos, of which around 1,250 have already been delivered.

The recent issues with the MAX 9, along with the Federal Aviation Administration's oversight and customer feedback, have reignited discussions about whether Boeing should develop a new aircraft in the size range of the MAX 10 or A321neo. This would entail moving away from the existing 737 model. However, designing a new plane is an extensive process that could take close to a decade and cost billions of dollars.

Boeing now faces numerous pressing questions. In the coming months, their management must focus on alleviating uncertainties. Primarily, this requires preventing any further incidents from occurring, which may prove challenging. Nonetheless, the aircraft manufacturer must take every possible measure to ensure safety.

Additionally, Boeing needs to address the damage caused over the past three weeks. Expanding production capabilities for the 737 is crucial, or alternatively providing investors with a clear timeline for achieving this goal. Similarly, efforts must be made to obtain certification for both the MAX 7 and MAX 10, or at least provide investors with transparent information regarding the timeframe for certification. Only after these crucial tasks are accomplished can discussions about a new aircraft take place.

Boeing is confronted with a significant challenge, but this is the reality it currently faces.