Boeing (BA 4.21%) got a big endorsement for its 737 MAX line from an Indian customer, providing investors with a sign that demand for the plane remains strong despite its latest quality issues. Investors are cheering the news, sending shares of Boeing up nearly 4% as of 1 p.m. ET Thursday.
A welcomed bit of good news
Boeing’s 737 MAX is under scrutiny yet again. Once expected to be among the best-selling airframes of all time, the plane was grounded for 18 months beginning in 2019 after a pair of fatal accidents. It returned to the skies in late 2020, but has been the subject of a number of smaller probes and incidents in the quarters since.
The latest issue involves an Alaska Air Group plane that earlier this month lost pressurization at 16,000 feet after a door plug fell out midflight. The Federal Aviation Administration (FAA) is currently investigating the incident, which could impact nearly 200 similar planes operating worldwide.
The issue led to a series of Wall Street downgrades and price target cuts.
On Thursday, Boeing said that India’s Akasa Air has ordered 150 additional 737 MAX jets, increasing its total orders from Boeing to 226. Although the order was likely in the works for some time, and the announcement was saved for an Indian airshow, it is a jolt of good news for Boeing.
Is Boeing stock a buy after a difficult start to the year?
It’s worth mentioning that even with Thursday’s pop, the stock is still down 19% for the year, with most of that loss happening in the days since the Alaska Air incident. Although the issue does not appear to be as complex, or as costly, as previous 737 shortfalls, it has damaged Boeing’s credibility and could slow the company’s recovery.
No matter what happens from here, it seems almost certain that Boeing will remain under close FAA scrutiny for the foreseeable future. That could slow production lines and make it harder for new models to win regulatory approval. Boeing also needs to rebuild its credibility with key customers.
Boeing is likely to survive this crisis, and the stock seems destined to fly higher as deliveries normalize and the company is able to pay down some of the massive debt it took on during the pandemic.
But the recovery will take time, and investors are understandably nervous about what further news might come out as Boeing’s operations are scrutinized. For now, this is an aerospace story stock best watched from the sidelines.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group. The Motley Fool has a disclosure policy.
