By Aaron Gregg
October 29 at 5:52 PM

Aerospace giant Boeing’s share price dropped nearly 7 percent Monday after one of its newest planes careened into the Java Sea off the coast of Indonesia with 189 people on-board.

The new Boeing 737 MAX8 was operated by Lion Air, the Indonesian budget airline that has emerged as an important international customer at a time when the Chicago-based company is hoping to expand its sales in Southeast Asia.

Lion Air had only recently been cleared to fly to the European Union. As one of the largest budget airlines in Southeast Asia, it is considered a key player in a fast-growing market for commercial air travel.

With an investigation into the cause of the crash in its earliest phases, it is not known whether the crash was caused by mechanical problems, human error or something else. According to news reports, Lion Air Group chief executive Edward Sirait said Monday that the plane had a technical issue on a previous flight, but that it had been resolved “according to procedure.”

In a statement posted online Monday, Boeing said it is providing technical assistance to Indonesian government authorities investigating the plane crash. The company referred questions to local authorities.

“We extend our heartfelt sympathies to the families and loved ones of those on board,” the company said. “Boeing is providing technical assistance at the request and under the direction of government authorities investigating the accident.”

The Boeing 737 MAX8 is a new iteration of a commercial jet model that has flown for decades. The plane involved in the crash was delivered just a few months ago.

The 737 MAX series has been a powerhouse for Boeing and a key driver for the company’s commercial airline business in recent years. Boeing has led the broader stock market rally for much of the past two years, propelled in large part by new lines of business in emerging international markets like Indonesia. With nearly 4,700 orders from more than 100 international customers, the 737 MAX series is the fastest-selling airplane in Boeing’s history.


The plane, according to aerospace analysts, was a new version of a tried-and-tested model.

The 737s have ferried passengers around the globe since the 1960s, and newer models are tested extensively before delivery, they said. While the 737 MAX8 is billed as a new jetliner, it is closely adapted from earlier versions of the Boeing 737. The 787 MAX 8, 9 and 10 models differ primarily in terms of the size of the fuselage and the number of seats.

“This design has had over half a century of tremendous success," Teal Group aerospace analyst Richard Aboulafia said, "and there’s so much testing that goes on and so much experience with this particular model.”
Still, investors reacted sharply to the news. Boeing’s stock price was down seven percent by lunchtime Monday even as major stock indices had posted gains. Airbus, the European manufacturer that also sells commercial jetliners in Indonesia, was also down slightly.

Monday’s crash could become a problem for both companies.

Lion Air is growing quickly: According to records maintained by the aerospace consultancy Boyd Group International, Lion has 205 open orders for Boeing 737 models, though that pipeline includes only one MAX8 model that hasn’t yet been delivered. Earlier this year Lion announced it would buy 50 new MAX-10 models.

Lion Air “is a very important customer to Boeing,” said Mike Boyd, founder of Boyd Group, an aerospace market research firm.

He said he was surprised by the steep drop in Boeing’s share price, which he called an “overblown” reaction by investors.

He also noted that Indonesia’s oversight of its airline industry has been the source of concern in the past. It was only this past June that Lion Air was deemed safe for travel by the European Union.

“The EU’s issue was they felt that the Indonesian government was not providing oversight and policing of its airlines,” Boyd said. “That caused a lack of confidence in Indonesian airlines.”

In 2012 two of its pilots tested positive for methamphetamine use, and were subsequently arrested hours before takeoff. In 2004 a Lion Air plane skidded off the runway and crashed after it tried to take off in heavy rains, killing 31. Other Indonesian airlines have experienced their own issues, such as a 1997 Garuda Airlines crash that killed 234 people.

Even before the facts of the crash are established, there has been some international backlash against the airline. The Australian government recently instructed government officials and contractors not to fly Lion Air following the crash, Reuters reported Monday.

“None of this creates confidence in the mind of the consumer or the traveling public about Lion Air or the Indonesian aviation market,” said Henry Harteveldt, co-founder of the aviation consultancy Atmosphere Group. “It’s a serious issue, and we need to find out what caused it, but brand new airplanes don’t generally fall out of the sky.”

https://www.washingtonpost.com/business/2018/10/29/boeing-stock-plunges-after-its-plane-goes-down-indonesia/?noredirect=on&utm_term=.1cd1361da7ae