Boeing’s 737 MAX Was Grounded 1 Year Ago. Here’s What Has Changed. - Barron's

A Boeing 737 MAX airplane is seen parked at a Boeing facility in Renton, Washington.

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The Boeing 737 MAX—the commercial aerospace giant’s newest model single-aisle jet—was grounded on March 13, 2019, following two deadly crashes within a five-month span.

In the year after the Federal Aviation Administration’s decision to halt commercial flights for 737 MAX, the stock has become incredibly cheap, dropping about 50%. The question for investors, nearly exactly one year after the MAX was grounded: Is its cheap enough, despite ongoing risks related to the MAX and the global coronavirus outbreak?

Boeing stock was about $335 when Lion Air flight 610, one of 14 MAX jets operated by the airline, crashed into the Java Sea on October 29, 2018, about 12 minutes after take-off. Eight crew members and 181 passengers were killed.

Investors didn’t pay much mind to one accident. Boeing shares were about $422 a few months later when Ethiopian Airlines flight 302—also a 737 MAX—crashed on March 10, 2019. That flight lasted just a few minutes. The plane was carrying 149 passengers and eight crew members.

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Two crashes inside of five months just shouldn’t happen to a modern jet. Both crashes were linked to a new flight control software known as MCAS, short for maneuvering characteristics augmentation system, which took incorrect angle of attack data from sensors, pushing the nose of the plane down repeatedly.

Some pilots weren’t fully aware of the new system, one of the surprises discovered over the past months, and one of the reasons Boeing is now recommending full simulator training for all pilots flying MAX jets.

Pilots are qualified to fly certain types of jets. Since the MAX was a derivative of older 737 models, a full battery of new training wasn’t required to fly Boeing’s newest technology.

Investors, early on, never imagined the plane would remain grounded for such a long period. Neither did Boeing. Management kept pushing out its return to service date. Now Boeing believes the MAX will come back in the middle of 2020. That’s the assumption all aerospace stakeholders—from airlines to suppliers—are working under.

Boeing shares closed Wednesday at about $190 a share. That’s less than 10 times 2022 and 2023 Wall Street earnings estimates—points, presumably, far enough into the future to predict a return to normality. The last time Boeing traded like that was during the 2008-09 financial crisis.

It looks like a bargain. But the MAX isn’t flying yet. Uncertain remains. And investors—as the Dow Jones Industrial Average slipped into bear-market territory on Wednesday—are sick of uncertainty.

The Dow is down 20.3% from its February high, a little worse than the drop of the S&P 500 over the same span. Boeing is down almost 46% since then. Boeing’s declines have contributed 1,074 points to the Dow’s 5,998 point decline. That’s almost 18% of the points. It’s more than Boeing’s fair share. The company, after all, is one of just 30 Dow stocks.

Write to Al Root at allen.root@dowjones.com

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