FAA Identifies New Issue On Grounded Boeing 737 Max

FAA Identifies New Issue On Grounded Boeing 737 Max
June 28, 2019


Aircraft manufacturer Boeing Company’s (NYSE: BA) plans to bring back its 737 Max jet to service got delayed again as the Federal Aviation Administration (FAA) has pointed out a new technical issue in the plane. So, government authorities will not squash the national grounding order unless the issue is resolved. Following the news, Boeing ended Wednesday’s trading at $364.02, down $10.92 or -2.91% from the prior close.

In a securities filing, Boeing disclosed that the FAA had instructed the company to resolve a particular flight condition through appropriate changes in software, which the company has been working on for the past eight months. Notably, the coding changes planned by Boeing do not address the new issue pointed out by the FAA.

The instruction was issued after the FAA pilots discovered a new issue during simulation of the Maneuvering Characteristics Augmentation System (MCAS) conducted last week. The system allowed the pilots to take back control of an aircraft after an extended period of time. Two fatal crashes killing 346 passengers (Ethiopian airlines with 157 passengers and Lion Air with 189 passengers) in a span of six months caused the grounding of the 737 Max aircraft in March. Regulators across the globe have blamed a software issue as a possible reason for the accidents.

In response, Boeing has announced that it will not send the 737 Max for FAA’s scrutiny and certification before addressing all concerns and ensuring a trouble-free return to service.

The agency clarified that it would follow a stringent protocol, which involves a detailed assessment of the aircraft without any predetermined timeline. As a result, the FAA intends to remove the prohibition order only after making sure that the plane is safe to fly. The agency further said, “The FAA’s process is designed to discover and highlight potential risks. The FAA recently found a potential risk that Boeing must mitigate.”

The new instructions issued by the FAA could result in further setbacks for Boeing, which is keen to get the 737 Max jet back into service. Notably, airlines such as American, United, and Southwest have eliminated the aircraft from their timelines at least up to Labor Day. As a result, thousands of flights have been canceled during the peak summer journey season.

Boeing has determined that the erratic functioning of a microprocessor handling the data could be a possible cause of the problem. The company believes that the issue can be sorted through a software update.

Regarding the issue of safety, a company spokesperson said, “The safety of our airplanes is Boeing’s highest priority. We are working closely with the FAA to safely return the Max to service.”

Global airlines have suggested regulators work in tandem with Boeing regarding technical requirements and schedules to ensure the jet’s safe return to service. In a statement issued after conducting a meeting of 40 airlines and government officials in Montreal, the International Air Transport Association requested worldwide cooperation with extra coaching facilities for 737 Max airline staff.

The likely delays in obtaining necessary clearance from the FAA are anticipated to keep the stock weak in the days to come.

Technically, the stock has started declining after facing resistance at 375. Furthermore, the stochastic oscillator is making new lows. As a result, we can expect the stock to move down in the short-term.

BA - technical analysis - 28th June 2019

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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