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Boeing Unlikely to Lose 737 MAX Customers to Airbus, Cowen Says

Esha Dey
Boeing Unlikely to Lose 737 MAX Customers to Airbus, Cowen Says

(Bloomberg) -- The unprecedented grounding of Boeing’s MAX aircraft by foreign countries while U.S. Federal Aviation Administration reviews have shown no systemic issues is a negative for the planemaker’s reputation and the agency’s global standing, Cowen analyst Cai von Rumohr wrote in a note on Wednesday.

“The FAA has lost some credibility as the ultimate arbiter of aircraft safety; and foreign regulatory bodies and airlines may be slow to accept FAA assurances that all is under control as a signal to resume MAX operations,” von Rumohr wrote.

Even so, the analyst said it would be impractical for airlines to switch to Airbus’s A320 given its backlog is even longer than that of the 737 jet. Boeing’s crisis has deepened over the past few days after nations around the world decided to ground the 737 MAX aircraft, following the second deadly crash in recent months. Multiple operators have already said they were re-evaluating their plans to buy the aircraft.

While near-term news for Boeing could get worse before it improves, von Rumohr does not see a meaningful long-term risk since the company has a software fix in hand, which will be rolled out “shortly.”

Boeing claims the update is easily installed in several hours, and it will begin to update planes in the field shortly, while also implementing the fix on planes coming off the line, the analyst wrote.“It’s unclear how long this process will take, but our guess is weeks and not months,” he added.Airlines will not be able to fly the MAX until their regulatory bodies lift the grounding, and they may well decide to resist accepting MAX deliveries temporarily; however, since Boeing gets about 60 percent of a plane’s sale price on delivery, Cowen estimated that a one-month slip of all MAX deliveries (about 60-65 planes) would push out about $1.8 billion in cash receipts“We don’t see Boeing or suppliers slowing or suspending production since the cost of doing so would be prohibitive while delayed receipt of delivery proceeds would be largely a timing issue,” the analyst said.von Rumohr holds an outperform rating on Boeing, with a price target of $475.Boeing has 21 buys, 7 holds, and 1 sell, and an average price target of $446, according to Bloomberg dataBoeing shares fell about 1 percent in pre-market trading in New York. The stock has lost over 11 percent of its value in the past two days, after the Ethiopian Airlines plane crashed on Sunday, killing all 157 people on board.NOTE: Earlier, Boeing Crash Isolates FAA as China Leads Push Against Max

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