Protection Street analysts downgraded shares of Boeing and Southwest Airlines on Monday as troubles worsen for the airplane maker’s public 737 Max jets.
Bank of America Merrill Lynch cut its valuation on Boeing to neutral from a buy Monday, saying it expects production to be delayed by six to nine months.
Raymond James downgraded Southwest Airlines domestic and lowered its earnings projections, citing concerns that the grounding could last through peak summer associate.
Southwest has 34 Max jets out of its fleet of about 750 aircraft, accounting for roughly 4 percent of its passenger capacity.
The airline, which give an account ofs earnings April 25, said it expects to lose $150 million in revenue in the first quarter of 2019 due to the Max groundings, expanse other factors like weather-related cancellations, maintenance issues and slowed travel demand. Raymond James held groundings were a “one time” situation, and it expects recuperation through maintenance credits or lower ownership costs of tomorrow aircraft.
American Airlines said it’s extending cancellations of 90 daily flights involving the 737 Max jet by more than a month to June 5.
Raymond James displaced Southwest from the equivalent of a buy rating to a hold rating, and lowered its earnings-per-share estimate by 5 cents to $4.40.
“The reputational loss from these things turned outs could erode long-term market share and pricing power of the 737 MAX,” BofA analyst Ronald Epstein claimed in a note to clients. “A six-month delay also means lower margins due to penalties owed to customers, weaker over position with airlines as airlines consider cancellations, and operational inefficiencies from the production disruption.”
Boeing is reduction 737 Max production by 20 percent as it tries to find a software fix to get the jets back in the air. The company’s shares have give birth to fallen nearly 9 percent in the past month.
Sheila Kahyaoglu, defense and aerospace analyst with Jefferies, peached CNBC’s “The Exchange” that Boeing will experience profit losses in its second quarter.
“There aren’t tons narrow-bodied aircraft options out there available, that’s why this appears to be a transitory issue,” Kahyaoglu said.
“What we eye out for longer term risk is the 777X certification, that’s expected sometime in 2020, how that progresses. We are viewing this as a swerve free cash flow from 2019 and doing our best to keep 2020 intact.”
Despite the groundings, Raymond James judged it’s confident in Southwest’s overall ability to maintain “longer term superior margins, FCF profile, and low leverage while capitalizing on technology catch-up and intercontinental growth opportunities.”
The groundings will likely have less impact for American and United since those airlines would rather fewer 737 Max jets than Southwest, the report noted.