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Boeing’s shares (NYSE: BA) plunged to two-month lows recently as investors jumped ship following a major incident involving the 737 MAX 9 jet. This led to the model’s grounding and the Federal Aviation Administration (FAA) investigation. Wall Street analysts said the probe could open “a whole new can of worms,” hinting at potential challenges for the already troubled plane maker. 

“Odds of a clean audit are low,” Wells Fargo Says

It hardly could have been a worse start to the year for Boeing.

The stock fell more than 20% since the calendars flipped to 2024, with the bulk of those declines attributed to the recent door plug incident that resulted in the grounding of Boeing’s 737 MAX 9 jet. 

In addition, the FAA opened an investigation into the incident to ensure a panel that blew off the plane in midflight was safe and manufactured to meet the design that regulators approved. In a new report released Tuesday, Wells Fargo analysts said that the odds of the FAA concluding its investigation without significant findings were pretty low.

“Given Boeing’s recent track record, and greater incentive for the FAA to find problems, we think the odds of a clean audit are low. The FAA’s audit is limited to Max 9 for now, but it’s feasible that findings could expand the scope to other Max models sharing common parts.”

– the analysts noted.

According to Wells Fargo, the probe significantly elevates the likelihood of Beoing suffering a hit to its production and deliveries. Consequently, the strategists downgraded the stock to Equal Weight from Overweight. 

Boeing said in a Thursday statement it “will cooperate fully and transparently with the FAA and the NTSB on their investigations.” Moreover, the jet maker Boeing has appointed an independent team of experts, led by retired US Navy Admiral Kirkland H. Donald, to comprehensively assess its quality management system for commercial airplanes in response to ongoing investigations. 

Boeing’s Quality Control Issues

Boeing’s decision to tap Donald and his team comes after the company announced it would hire an outside adviser last week to help evaluate its quality control. Notably, the former military leader will also examine the plane maker’s “quality program and practices” in its factories and those of Boeing’s suppliers. 

Boeing grappled with persistent quality and safety challenges for years now. These issues resulted in prolonged grounding and halted deliveries of various aircraft. The troubled 737 Max, implicated in two fatal crashes that claimed 346 lives, endured a 20-month grounding, costing Boeing over $21 billion. 

Due to FAA-identified concerns, quality issues extended to the 787 Dreamliner, prompting two delivery halts in 2021 and 2023. Similarly, the 777 faced grounding following an engine failure on a United flight, scattering debris on homes and the ground below.

The recent developments suggest that Boeing may be in for a turbulent ride in the coming months. Where do you expect the stock to end the year? Let us know in the comments below. 

Disclaimer: The author does not hold or have a position in any securities discussed in the article.

About the author

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.