As Boeing Co. works on damage control, Wall Street’s best-case scenarios for the aircraft maker is for a relatively short 737 Max grounding, no lengthy delivery halts, and no major redesign for the plane, the best-selling commercial jet of all time.
Hundreds of Boeing BA, -1.02% Max jets around the world are grounded after a second fatal crash in less than five months involving one of the models. U.S. and Canadian aviation authorities on Wednesday grounded the planes, a day after several major aviation agencies and airlines in Europe, the Middle East and Asia did so.
Investors and analysts are still evaluating the financial implications for Boeing, assessing the importance of the plane for its bottom line, and reviewing the company’s deep cash reserves.
Boeing shares, meanwhile, took another hit on Thursday, and have lost more than 11% this week. The fallout from the crashes and grounding has wiped out nearly $27 billion of Boeing’s market capitalization.
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“At this time, we see the best-case scenario for (Boeing) as a six- to eight-week grounding,” said Ken Herbert, an analyst at Canaccord Genuity.
The global groundings came after a Max 8 jetliner crashed in Ethiopia on Sunday, killing 157 people. In October, the same model was involved in a Lion Air crash that killed 189 people in Indonesia in eerily similar circumstances.
The company started working on a software upgrade soon after the first crash in October, and the upgrade is expected to be ready to go in a few weeks.
The upgrade’s installation itself is likely to be “relatively easy,” and cost a relatively paltry $500 million, Herbert said in a note.
Read more: The U.S. grounds the Boeing 737 Max aircraft — what that means for air travelers
The grounding could cost about $1 billion a month in lost free cash flow from delivery delays. The monthly bill could go up another $1 billion or so, depending on how much Boeing may have to reimburse airlines for the disruption, he said.
That of course assumes that the cause of two crashes is similar, which will take time to determine. Aviation safety experts have cautioned that plane crashes usually involve a combination of causes. The investigation into the Lion Air crash is not yet complete, although in that case the black boxes took weeks to be found. In Ethiopia, the black boxes were recovered shortly after the crash.
The U.S. Federal Aviation Administration late Wednesday moved to ground the Max fleet, citing new satellite evidence pointing to similarities between the two crashes. Transport Canada had moved to ground the Max a few hours earlier, citing the same data.
The Max accounts for more than a third of Boeing’s estimated revenue through the next five years, analysts at Goldman Sachs, led by Noah Poponak, said in a note this week. If the plane needs a major redesign due to a broader flaw, a fix would be costlier and lengthier, the analysts said.
Around 370 Max planes were in service, and the plane’s backlog is approaching 5,000. Carriers operating the most Max planes include Southwest LUV, +1.09% Air Canada AC, -0.37% American Airlines AAL, +0.91% and China Southern 600029, +4.30%
Boeing’s 2013 grounding of about 50 787 Dreamliners following some battery-related electrical fires lasted some four months. Deliveries were halted at that time, but it’s unlikely that the company also halted production given the pace of deliveries later in the year, the Goldman analysts said.
Boeing late Thursday said it had paused deliveries of the 737 Max, but that it would continue to make the aircraft and that the halt would not impact its overall production rate of 52 aircraft a month.
Shares of Boeing fell less than 0.1% in the extended session Thursday after the announcement.
Analysts at J. P. Morgan had said in a note Thursday that a 737 Max delivery halt was “probable,” but “while ostensibly negative, it may be anticipated in the stock.”
The analysts had said that If Boeing stopped deliveries, it likely would keep building aircraft “for as long as possible and hold them in inventory to avoid any disruptive changes to the production cadence.”
That’s where Boeing’s deep pockets should be useful, the J. P. Morgan analysts said. Boeing generates “far more cash than any industrial company in the world,” they said.
Cash-flow hits related to the grounding would be a disruption, “but deploying the company’s financial resources to support a critical global franchise and shore up confidence in a key piece of the aviation landscape for the next few decades makes a lot of sense, in our view.”
Boeing shares have gained nearly 14% so far this year, outpacing gains of around 2% for the S&P 500 index SPX, -0.09% and 4% for the Dow Jones Industrial Average. DJIA, +0.03% Boeing is a Dow component.
The company is expected to report first-quarter results next month, and analysts surveyed by FactSet are expecting adjusted earnings of $4.29 a share on sales of $25.4 billion, which would compare with adjusted profit of $3.64 a share on sales of $23.3 billion in the year-ago period.