As if Boeing needed any more bad news, a scathing report from Wall Street on Tuesday cast doubt on the company's ability to pass a new federal safety audit, sending the company's stock price plummeting. Late Tuesday, Boeing announced an independent adviser to lead a review of the company's quality controls.
Wells Fargo's report, titled “FAA Audit Opens a Whole New Can of Worms,” cited long-standing quality control and engineering problems at Boeing. Alaska Airlines]After part of a 737 Max 9 jet crashed mid-flight, it was highly unlikely that the U.S. Federal Aviation Administration would conclude its investigation without significant findings.
“Given Boeing's recent performance and the FAA's strong incentive to find problems, we believe a clean audit is unlikely,” the analysts said. “While the FAA's audit is currently limited to the Max 9, the findings could potentially expand its scope to other Max models that share common parts.”
Analysts believe the investigation significantly increases the risk that Boeing will suffer a hit to production and deliveries, and lowered their rating on the company's stock from “overweight,” the equivalent of “buy,” to “equal weight.” Ta.
Boeing (BA) stock fell 8% on the news.
The FAA launched an investigation into Boeing's quality control last week in response to the Alaska Airlines incident. Regulators say the dramatic explosion on board Alaska Airlines Flight 1282 “never should have happened and will never happen again.”
The door plug that was supposed to fill the space vacated by the removal of the emergency exit door on the side of the plane was blown off the plane, leaving a large hole in the side of the plane. Shortly after taking off from Portland, Oregon, with 177 people on board, the plane was flying at an altitude of 16,000 feet when the explosive decompression and subsequent high-velocity air force in the cabin caused the head restraints to separate from the seats.
Several passengers were injured, but by an extraordinary stroke of luck, no one was sitting next to the door plug and no one was killed.
The FAA said the investigation will focus on whether Boeing's “finished products comply with approved designs and are safe to operate in accordance with FAA regulations.”
Boeing declined to comment Tuesday, but said in a statement last Thursday that it would “fully and transparently cooperate with the FAA and NTSB investigations.”
To help respond to these investigations, Boeing has appointed an independent advisor to review quality controls on its commercial aircraft production lines.
Boeing announced Tuesday that a team of outside experts led by retired U.S. Navy Adm. Kirkland H. Donald “will conduct a thorough evaluation of Boeing's commercial aircraft quality management system.” The company announced last week that it would bring in outside advisors to help evaluate its quality controls, which it is doing.
Boeing said Donald and his team will examine “quality programs and practices” at Boeing's factories as well as Boeing's suppliers, and will report their findings to Boeing's board of directors.
Boeing CEO David Calhoun said in a statement that the review provides “an independent, comprehensive review with practical recommendations to strengthen quality oversight across our factories and commercial aircraft production systems.” “We will receive a positive evaluation.”
Stan Diehl, Boeing's executive director of commercial aircraft, said Monday that the company is “taking a hard look at our quality practices across our factories and production systems.”
Prior to today's move, Diehl said in a memo to employees obtained by CNN that the airline would conduct additional inspections of each 737 before delivery. He also said that Boeing is now monitoring more closely the work of key suppliers that make the 737 Max's airframes.
Last week, FAA Administrator Mike Whitaker said the agency is considering “bringing an independent third party to oversee Boeing's inspection and quality systems.”
A week ago, Mr. Calhoun acknowledged the company's “mistake” at an all-employee “safety meeting,” but he did not say what the mistake was. National Transportation Safety Board Chair Jennifer Homendy called for answers about Boeing's mistakes as part of a safety investigation separate from the FAA audit.
The investigation is ongoing and it remains unclear what caused the plane's door plug to blow off, but two airlines that operate large numbers of 737 Max 9s, Alaska Airlines and United Airlines, have said they believe the fitting may have been loose. announced that they had discovered one of the bolts. Assembly of aircraft door plugs. United Airlines says the discovery points to a possible installation problem.
In a letter to Boeing last week, the FAA gave Boeing 10 days to provide information about the cause of the Alaska Airlines crash. They also want to know what measures Boeing has taken to prevent it from happening again.
Wells Fargo analysts noted in a report that many FAA investigations remain “investigative” months after the initial incident, and FAA investigations take time to complete. He pointed out that there is a possibility.
All 737 Max 9 planes remain grounded as the FAA works to approve Boeing's inspection standards for airlines to assess the safety of their aircraft. Regulators have not said when the planes will return to service. Alaska Airlines and United Airlines are canceling more than 100 flights a day pending full approval from the FAA.
Over the past five years, Boeing has faced repeated quality and safety problems with its aircraft, leading to long-term groundings of some jets and halted deliveries of others.
The design of the 737 MAX was found to be the cause of two fatal accidents. One occurred in Indonesia in October 2018 and the other in Ethiopia in March 2019. Together, the two crashes killed all 346 people on board the two flights and led to a 20-month grounding. The company's best-selling jets have sold for more than $21 billion.
Internal communications released during the 737 Max grounding show one employee describing the plane as “designed by clowns and overseen by clowns and monkeys.”
Late last month, Boeing told airlines to inspect all 737 Max jets for possible loose bolts in the rudder system after the airline discovered potential problems with two key parts on its planes. requested that it be done.
Its quality and engineering problems extend beyond the 737. Boeing also had to halt deliveries of the 787 Dreamliner for about a year starting in 2021 and twice in 2023 due to quality concerns cited by the FAA. A United Airlines 777 was also grounded after an engine failure sent pieces of the engine flying into houses and onto the ground below.
Two variants of the Max, Max 7 and Max 10, are still awaiting approval to start carrying passengers. Wells Fargo analysts said the incident further complicates that.
“The Max 7 and Max 10 variants will likely come under increased scrutiny in the future,” they said. “This includes necessary security exemptions that, while perhaps reasonable, would be difficult to grant politically given recent events.”
CNN's Pete Muntean, Chris Isidore and Ramishah Maruf contributed to this report.