BCAW Day 5 – Boeing Completes 737 Max Software Upgrade

Business Continuity Awareness Week (BCAW) 2019 ends with the news today that Boeing has completed an upgrade to the 737 Max software, following the fatal crashes in Indonesia and Ethiopia.  Obviously the most important issue in all of this is the 346 lives that were tragically lost in the two crashes; but the question we consider in this article is what is the long-term cost to Boeing itself?  Sadly, given the relative frequency of fatal air crashes we have quite a lot of comparative data on the cost to airlines of these events and this was analysed in detail in a study by Oxford Metrica in 2005.

In the first two days of trading after the Ethiopian Airlines crash on 10th March, Boeing’s share price fell by 11%; representing a loss to shareholders of nearly $27 billion.  A negative reaction like this is completely to be expected, although it is somewhat higher than the average immediate loss of share price to airlines following a fatal crash observed in the Oxford Metrica study.  Perhaps more significantly, Boeing’s share price has continued a general downward drift ever since, ending trading yesterday down 16% on its pre-crash share price (a loss of $39 billion).

The Oxford Metrica study found that two to three months after a crash the airlines separated out into two groups: those whose share price had already begun to bounce back; and those whose share price continued downwards.  By this stage investors have largely reached a settled judgement about the future prospects of the company and, critically, the competence and trustworthiness of the management team.  The bad news for Boeing is that if their share price does not start rebounding in the next few weeks, they are likely looking at a significant permanent loss in the value of the company.