Boeing Co. (BA) shares are seeing turbulence once again as regulators zero in on lingering issues with its 737 MAX aircraft in the wake of fatal crashes.
Shares of the Dow Industrials leader were down around 3% in premarket trading Thursday following the revelation that the Federal Aviation Administration (FAA) found a "potential risk" in Boeing's MCAS software that will require additional fixes.
"The Federal Aviation Administration has asked The Boeing Company to address, through the software changes to the 737 MAX that the company has been developing for the past eight months, a specific condition of flight, which the planned software changes do not presently address," Boeing said in an SEC filing. "The Boeing Company agrees with the FAA's decision and request, and is working on the required software to address the FAA's request. "
As a result of the request, Boeing said it will not offer the 737 MAX for certification by the FAA until the company has "satisfied all requirements for certification of the MAX and its safe return to service."
For now, the FAA has not set a timeline for the aircraft's reinstatement, despite the company's comments that would suggest clearance by the end of the summer.
"The FAA will lift the aircraft's prohibition order when we deem it is safe to do so. We continue to evaluate Boeing's software modification to the MCAS and we are still developing necessary training requirements," the FAA said in a statement published on its website. "We also are responding to recommendations received from the Technical Advisory Board (TAB). The TAB is an independent review panel we have asked to review our work regarding 737 Max return to service."
The ripple effect has been immediately felt through airlines that heavily utilize the model, including Southwest Airlines (LUV) and United Continental Holdings (UAL) .
United Airlines said Wednesday that it will pull all MAX aircraft from its summer schedule, resulting in around 3,200 cancellations over July and August, and it doesn't expect Boeing's flagship plane to return until at least Sept. 3.
"With the timing of the MAX's return-to-service still uncertain, we are again revising our plans to remove the MAX from our schedule through Sept. 2," United said in a statement just last week. "The revision will proactively remove roughly 100 daily flights from our schedule out of our total peak-day schedule of more than 4,000 daily flights."
Analysts have suggested that Boeing's large backlog of planes due to issues with the 737 MAX should significantly impact coming earnings reports.
"In our base case, we assume MAX deliveries resume at the beginning of Q4 with BA ramping a delivery rate of 70-80 aircraft per month in early 2020," Barclays analyst David Strauss noted. "At this pace, we estimate that it will take 9-12 months to deliver the aircraft that have been built during the grounding period and BA and the supply chain to be able to begin to move up in rate."
Strauss said the ripple effect of delayed deliveries also impacts parts suppliers, which may not have fully factored those delays into their estimates.
The dynamic is crushing for Boeing, which has built a large degree of its backlog story on orders for its 737 MAX 8 plane that was thought to be outpacing its peer at Airbus (EADSF) . Now it appears the balance of power in the aircraft duopoly is shifting and Airbus will be able to gain ground on its U.S. rival as more than half of Boeing's seven-year backlog comes into question.
In addition, Boeing's woes are leading many groups, including pilots, international airlines such as Norwegian Air Shuttle (NWARF) , Air China (AIRYY) , and RyanAir (RYAAY) , and the aforementioned domestic airlines to pursue legal means to recover lost profits on grounded planes.
"What happens next is in the hands of European aviation authorities. But we hope and expect that our MAXes will be airborne soon," Norwegian Air CEO Bjoern Kjos said earlier this year. "It's quite obvious that we will not take the cost related to the new aircraft that we have to park temporarily. We will send this bill to those who produce this aircraft."
Boeing CEO Denis Muilenberg recently acknowledged that talks are taking place with the complainant firms to find appropriate financial compensation for the grounded planes and subsequent cancellations.
For more on what the charts are telling us to expect, click here.