Here’s why Boeing (BA) and Airbus (AIR) shares are falling

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Shares of Boeing (NYSE: BA) and Airbus (EPA: AIR) have been under pressure recently due to a combination of poor sales performance and increasing scrutiny over safety and manufacturing practices.

Boeing, in particular, has faced significant challenges, receiving orders for only four new planes in May.

For the second consecutive month, none of these orders were for its best-selling 737 Max, a setback linked to the fallout from a side panel blowout on a Max during a flight in January.

In contrast, Europe’s Airbus reported net orders for 15 planes in May—27 sales but 12 cancellations.

While this is a relatively better performance compared to Boeing, it still reflects the cautious market environment.

Boeing’s net sales for the month were further reduced by Aerolineas Argentinas canceling an order for a single Max jet, bringing its net sales to just three.

Impact on share prices

These dismal sales figures have taken a toll on Boeing’s share price, which fell by 3% in afternoon trading.

The disappointing results for May followed similarly poor figures for April, when Boeing reported just seven sales, none of which were for the Max.

Boeing hopes that the slow pace of orders is merely a lull before the Farnborough International Airshow next month, where significant aircraft deals are often announced.

Source: TradingView

However, this optimism is tempered by ongoing production issues and regulatory constraints.

FAA investigation and production caps

Adding to Boeing’s woes, the Federal Aviation Administration (FAA) is capping the company’s production of 737s following a series of safety concerns.

This includes a door plug blowing out from an Alaska Airlines Max and allegations by whistleblowers that Boeing has taken shortcuts to expedite production. Additionally, there have been reports of falsified inspection records on some 787 Dreamliner jets.

This scrutiny is not limited to Boeing. The FAA has also initiated an investigation into the use of counterfeit titanium components in both Boeing and Airbus aircraft.

The probe was triggered by Spirit AeroSystems discovering small holes in the material caused by corrosion, raising alarms about the quality and authenticity of the titanium components used.

These components, sourced from a lesser-known Chinese company, were accompanied by falsified documents.

Scrutiny and safety concerns

Both Boeing and Airbus are facing renewed scrutiny due to these recent safety issues and mishaps.

The discovery of counterfeit titanium components adds another layer of concern regarding the quality control processes and supply chain integrity of these leading aircraft manufacturers.

Ensuring the reliability and safety of aircraft components is paramount, as any compromise can have severe implications for passenger safety and the manufacturers’ reputations.

The FAA’s investigation will focus on assessing both the immediate and long-term safety impacts of the counterfeit components.

This includes evaluating the potential risks to aircraft currently in service and determining any necessary remedial actions.

The aviation industry is closely monitoring the situation, as the findings could lead to significant regulatory changes and stricter oversight of supply chains.

Market reactions and future outlook

The market reactions to these developments have been swift. Despite the slow pace of recent sales, Boeing still has a significant backlog of more than 5,600 orders, which may provide some cushion against the current challenges.

However, the overall outlook remains cautious, with Boeing’s revenue expected to drop by 5% this year to $73.5 billion, while Airbus is projected to see a 10% increase in revenue to $71.6 billion.

Shares of Airbus also fell, crossing below their 50-day moving average during trading this week.

At the time of writing, Boeing shares were at $178.75, while Airbus was trading at 142.06.

Expert analysis and industry implications

Industry experts have noted that while the FAA’s investigation is significant, its impact on Boeing and Airbus might be minimal in the long term.

Airbus is expected to continue working to maintain its market share, while Boeing focuses on restoring its reputation.

Analysts predict a bullish future for Airbus with an expected revenue rise, while Boeing’s path to recovery might be slower due to its current challenges.

Crispus Nyaga, an analyst at Invezz, commented,

This investigation is a big deal but its impact on Boeing and Airbus will be minimal. Airbus will continue working to maintain its market share as Boeing works to fix its reputation. I expect Boeing’s revenue to drop by 5% this year to $73.5 billion while Airbus will rise by about 10% to $71.6 billion.

The discovery of counterfeit materials in aircraft manufacturing underscores the critical need for rigorous quality control and supply chain management.

The aviation industry may need to implement more stringent verification processes to prevent similar issues in the future.

This incident highlights the importance of transparency and accountability within the supply chain to maintain the highest standards of safety and reliability.

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