Boeing shares fall 9% after mid-flight Alaska Airlines accident involving 737 Max 9 – as it happened

Time to recap….

Shares in Boeing have tumbled 9% at the opening bell on Wall Street, as the airline manufacturer is shaken by the fallout from in-flight blowout on a 737 Max last Friday.

Fuselage manufacturer Spirit AeroSystems dropped 12% in early trading, but have now recovered to a loss of 8%.

Investors gave their first reaction to the news that the plug door on an Alaska Airways flight tore away from the plane soon after it took off from Portland airport for Ontario, California.

The door plug is a panel fitted to replace an emergency door in some versions of the 737 Max 9 plane. US regulators ordered the temporary grounding of all Max 9 models with door plugs pending inspections after Friday’s incident.

In other news…

The oil price has fallen almost 4% today after Saudi Arabia cut the cost of its crude exports.

The move is being interpreted as a sign that demand is easing, and that Opec+’s voluntary output cuts are not preventing gobal supplies building up.

Channel 4’s chief executive has confirmed to its 1,200 staff that a round of major job cuts is looming, as the broadcaster seeks to hasten its shift to streaming amid the worst TV advertising downturn in 15 years.

Gambling group Bet365 is facing criticism after paying its billionaire boss more than £270m last year, even though it made a loss.

Three UK energy companies have been given permission to begin force-fitting prepayment meters in customers’ homes again if they adhere to strict new rules, ending a near year-long moratorium on the practice.

Industry bosses across UK manufacturing are more confident about the sector’s prospects, but also fear that “headwinds of sustained economic challenges” still remain.

A Russian oligarch will this week accuse Sotheby’s of helping an art dealer to trick him into overpaying for art masterpieces including Leonardo da Vinci’s Salvator Mundi, which went on to become the most expensive artwork ever sold.

U.S. consumers’ inflation expectations have dropped to their lowest level in almost three years – news which may cheer America’s central bankers.

The New York Federal Reserve has reported that inflation one year from now is expected to be at 3%, the lowest reading since January 2021.

That’s down on a forecast of 3.4% in November.

Looking further ahead, inflation in three years time is forecast to be 2.6%, compared to 3% in November, while price pressures five years ahead were at 2.5% versus 2.7% in November.

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Over in Germany, farmers kicked off a week of nationwide protests against subsidy cuts today, blocking roads with tractors.

The demonstrations pile misery on Chancellor Olaf Scholz’s coalition as it struggles to fix a budget mess and contain rising far-right forces.

Reuters has the details::

Convoys of tractors and trucks gathered on roads in sub-zero temperatures in nearly all 16 federal states, while protesters clashed with police and leading politicians warned that the unrest could be co-opted by extremists.

The protests have forced Scholz’s unpopular government into a tricky balancing act, trying to keep a lid on the unrest while sticking to fiscal discipline after a constitutional
court ruling in November threw its spending plans into disarray.

“No beer without farmers,” read one protest banner, while another tractor had a poster from the far-right Alternative for Germany (AfD) party that read “Our farmers come first.”

Vice Chancellor Robert Habeck, whose return from holiday last week was disrupted by furious farmers trying to storm the ferry he was on, warned in a video message on Monday that farmers’ right to protest could be exploited by fringe groups.

“Calls are circulating with coup fantasies, extremist groups are forming and ethnic-nationalist symbols are being openly displayed,” said Habeck.

Farmers called the protests in response to the government’s decision to phase out a tax break on agricultural diesel as it tries to bring its 2024 budget over the finish line while complying with the constitutional court ruling.

“For a farm like mine, I would lose about 10,000 euros,” said a farmer from Bavaria, Ralf Huber. “For our businesses, it’s a catastrophe.”

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Bonds issued by Boeing and also by Spirit AeroSystem are both falling in value today.

Bloomberg has the details:

The spread on Boeing’s 5.15% notes due 2030 widened 18 basis points to 113 basis points as of 9:53 a.m. New York time, on track for the biggest one-day increase since Jan. 13, 2023, according to Trace bond trading data.

The cost to protect the company’s debt against default for five years in the credit derivatives market jumped 16 basis points to 82 basis points, according to ICE Data Services.

Spirit AeroSystems — which makes the fuselage for the 737 — also saw its bonds weaken and was one the biggest losers in the US high-yield secondary market Monday morning. Its 4.6% note due 2028 fell about 4.6 cents on the dollar to 83 cents, the biggest drop since April.

Boeing (-9%) are the largest faller on the Dow Jones industrial average index.

They’re followed by energy producer Chevron (-2.4%), which has been hit by the drop in the oil price today after Saudi Arabia cut the price of its crude exports.

Tech firms are rallying, though, with both Intel and Salesforce gaining 1.9%.

But overall, the Dow Jones industrial average has lost 193 points or 0.5%, to 37,272 points in early trading.

Shares in Boeing have fallen by 9% at the start of trading in New York.

Wall Street traders are clearly alarmed by last Friday’s mid-air accident on an Alaska Airlines aircraft, in which a door plug on a Boeing 737 Max 9 blew out during the flight.

Spirit Aerosystems, which manufacturers fuselages for 737 Max, is also under pressures – its shares are down over 12% in early trading.

Alaska Airlines’ shares are down 5.6%. Alaska cancelled hundreds of 737 Max 9 flights last weekend after the accident.

As covered earlier, the US Federal Aviation Administration regulator ordered the temporary grounding of some 737 Max 9s operated by US airlines or in US territory last weekend, while it investigates what went wrong.

In the retail sector, clothing retailer Abercrombie & Fitch has raised its forecast for fourth-quarter and annual net sales, after seeing strong demand for its apparel brands.

CEO Fran Horowitz says:

“The Abercrombie & Fitch women’s business is expected to achieve its highest-ever fourth quarter sales complemented by an acceleration in men’s growth.”

Athletic clothing maker Lululemon Athletica has also raised its sales forecast for the Christmas period today.

With under 25 minutes to go until Wall Street trading begins, Boeing’s shares are on track to fall almost 8% to $230.

Back in Europe, investor morale has picked up.

Sentix’s latest investor confidence index for the eurozone has risen to -15.8 this month, up from December’s -16.8.

Sentix cautioned, though, that this increase is “is unlikely to be a turnaround”, citing the downturn in Europe’s largest economy.

It says:

This is partly due to Germany, whose economy is still in recession and therefore in crisis.

The billionaire boss of Bet365 is facing some criticism after being paid more than £270m last year.

Denise Coates, who set up Bet365 in a portable building in Stoke-on-Trent in 2000, received the bumper payout despite the firm making a £60m loss in the last financial year.

Coates was paid a salary of £220.6m in the year to 26 March 2023, a £7m increase on her pay the year before, according to Bet365’s latest accounts filed at Companies House on Monday. As its controlling shareholder she is also entitled to at least 50% of the £100m dividend that was also paid for the year.

The High Pay Centre, a thinktank, argue that such a pay package is neither fair or proportionate.

Luke Hildyard, executive director of the High Pay Centre, says:

“People deserve to be rewarded for innovation and success but there’s a question of what’s sensible and proportionate. Nobody becomes a multi-billionaire in isolation from wider society. In this case, the wealth depends on money coming out of gamblers’ pockets, the efforts of thousands of staff, plus wider factors like people having some disposable income, a secure and reliable internet network or all the infrastructure that goes into staging sports events.

Ultimately, Britain’s prosperity depends on how the wealth our economy generates is shared. Pouring hundreds of millions of pounds more on top of billionaire fortunes every year isn’t a good way to maximise living standards and it over-values the contribution that the super-rich have made.”

Elsewhere in the markets, the oil price has extended its earlier falls (see opening post) after Saudi Arabia cut the price of its crude exports.

Brent crude is now down 2.5% at $76.77 per barrel, towards the six-month low of $72.29 touched last month.

Saudi’s price cuts may be a sign that demand is weakening, or that strong supplies from rival producers such as the US could create a production glut.

Bjarne Schieldrop, chief commodity analyst at SEB, says:

This is probably not a signal that Saudi Arabia is suddenly shifting strategy from ‘price’ to ‘volume’.

But, it could be taken as a warning that Saudi Arabia won’t be the only oil producing nation to travel this road alone forever.

If OPEC+ requires additional cuts to sustain the oil price within the USD 80-90/b range, and the organisation hesitates to support these necessary cuts, the likelihood of Saudi Arabia implementing further unilateral cuts is uncertain.

In London, shares in engineering firm Senior, which produces components and systems for aeroplane manufacturers including Boeing, have dropped 4.7%.

That puts Senior at the bottom of the FTSE 250, the index of medium-sized firms listed on the UK market.

It indicates the City suspects demand for Boeing jets could be hit by last Friday’s blowout of the door plug on Alaska Airlines’ 737 Max, leading to fewer orders for its suppliers.

Boeing is likely to weigh on the Dow Jones Industrial Average share index today.

The Dow is currently on track to drop by 152 points, or 0.4%, according to the futures markets. Boeing is one of the 30 members of the Dow.

US traders are also jittery about how soon the Federal Reserve will feel able to cut interest rates, after a stronger-than-expected American jobs report last Friday.

The Alaska Air blowout is another blow to the efforts of Boeing CEO Dave Calhoun to stabilize the company after half a decade of upheaval, says Bloomberg.

The incident comes just a few days into a new year which Calhoun heralded as crucial to a turnaround.

Bloomberg reports:

Boeing is still feeling the reverberations of two deadly 737 Max crashes almost five years ago that shook confidence in the company. Now Boeing’s fraught relationship with Spirit, its biggest supplier, stands to face fresh scrutiny.

As the crisis in confidence deepened over the weekend, Calhoun canceled Boeing’s annual senior leadership retreat, which was to have begun Monday outside of San Diego. And he summoned employees to an all-hands meeting to be webcast from Boeing’s 737 factory on Tuesday, where he and other senior executives will address the near-tragedy and reinforce Boeing’s commitment to safety, quality, integrity and transparency.

While Boeing has made progress in recent years, “situations like this are a reminder that we must remain focused on continuing to improve every day,” Calhoun told employees in a company-wide message on Sunday.

More here.

Boeing’s reputation has been “shattered” after the incident last Friday involving one of its 737 Max planes flown by Alaska Airlines, says AJ Bell investment director Russ Mould.

He explains:

It is the latest in a string of problems for the company, which include the grounding of 737 Max plans in 2019 after two crashes and subsequent delivery delays and production issues.

Safety is of paramount importance in the aviation sector and airlines using 737 Max planes will be thinking long and hard about their future aircraft requirements and how Boeing might play a smaller role, or none at all. That might explain why Airbus shares jumped on Monday as investors are betting it could take even more market share from Boeing.

There is no room for error building planes and cutting corners in the production stage could have catastrophic consequences. There are naturally questions being asked about the quality checks and whether Boeing is trying to do too much too fast.

Boeing’s management will be under considerable pressure from the regulators and customers to explain what’s going on, which means considerable headwinds ahead for the business. It’s no wonder investors have raced to sell the shares as the risks to the investment case have just shot up.”

Boeing shares listed in Frankfurt have already dropped sharply, down by 7.5% on the German exchange.

Its European aerospace rival, Airbus, are up 1.8% this morning.

European safety regulators yesterday followed the US FAA in taking action against the Boeing 737 Max 9, after the Alaska Airlines panel blowout.

However, while the European Union Aviation Safety Agency has formally adopted the FAA directive, it believes no operators in EASA member states are actually affected.

EASA’s understanding is that no European airline operate the aircraft in the “relevant configuration”, in which the mid-cabin exit is replaced by a ”plug-in panel”.

EASA explains:

This configuration is typically adopted by airlines flying lower-density operations (with lower passenger capacity) where this additional exit is not required to meet evacuation safety requirements.

The 737-9 aircraft operating in Europe do not have this configuration and are therefore not grounded by the EAD and can continue to operate normally.

The UK Civil Aviation Authority said on Saturday there are no UK-registered planes affected.

The CAA will require any 737 MAX 9 operators entering its airspace to comply with the FAA directive.