Wall Street Analysts Say Boeing 737 MAX Grounding Will Last Until Summer

Apr 8, 2019

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Wall Street analysts downgraded Southwest Airlines’ stock Monday morning, predicting that complications with the Boeing 737 MAX will continue into the summer peak travel season and cause significant financial impact.

Analyst firm Raymond James downgraded the carrier’s shares from “outperform” to “market perform” due to the likely missed revenue from the planes’ grounding, “which we now believe may run into the summer months,” a note from the financial firm stated.

The downgrade is essentially knocking the airline’s rating from “buy” to “hold,” CNBC says.

Boeing 737 MAX planes have been grounded around the world after the fatal crash of Ethiopian Airlines flight 302, in which all 157 people on board the MAX 8 plane died on March 10. That crash closely mirrored another fatal accident on a MAX 8 jet, a Lion Air flight in Indonesia just five months earlier that killed all 189 people on board. Investigators noted an automated system on the plane activated before both crashes.

With 34 MAX 8 planes, Southwest flies the largest MAX fleet in the world, and the carrier already predicted at the end of March it will take a $150 million hit this quarter due the planes being out of commission (along with other operational problems, like a dispute with its mechanics). A note from analysts at Cowen at the time said that about 2,800 of Southwest’s flights were canceled after the MAX planes were grounded for two weeks.

Raymond James says Southwest is likely the US airline that will be most affected by the ongoing MAX issues because “it has the greatest exposure to the grounding of the MAX fleet and, in turn, has the largest earnings risk.”

American Airlines, which has 24 MAX planes in its fleet, recently extended its MAX cancellations until June “in an effort to provide more certainty and avoid last minute flight disruptions.” AA said that about 90 of its flights per day are cancelled because of grounded MAX planes.

But analysts say the impact on American will not be as bad as the effect on Southwest. “Given the relatively low exposure to the MAX at American and United, we believe there is less (but not zero) downside earnings risk,” the Raymond James note said.

After the downgrade, Southwest’s stock dipped 2.1 percent on Monday morning. Boeing shares also took a 4 percent dip early on Monday.

Featured photo of grounded Southwest Boeing 737 MAX 8 planes by MARK RALSTON/AFP/Getty Images.

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