Boeing, Southwest stock downgraded as 737 Max troubles deepen.
Boeing announced late Friday plans to cut production of the jet, which has been grounded following the March 10 crash of an Ethiopian Airlines flight that killed all 157 people aboard. It was the second fatal crash of the popular aircraft in less than five months and investigators suspect that faulty data feeding into the aircraft's automated flight system played a major role in both accidents.
The airline, which reports earnings April 25, said it expects to lose $150 million in revenue in the first quarter of 2019 due to the Max groundings, among other factors like weather-related cancellations, maintenance issues and slowed travel demand. Raymond James said groundings were a "one time" situation, and it expects recuperation through maintenance credits or lower ownership costs of future 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.
"The reputational loss from these events could erode long-term market share and pricing power of the 737 MAX," BofA analyst Ronald Epstein said in a note to clients. "A six-month delay also means lower margins due to penalties owed to customers, weaker negotiating position with airlines as airlines consider cancellations, and operational inefficiencies from the production disruption.".
Boeing is slashing 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 have fallen nearly 9 percent in the past month
Sheila Kahyaoglu, defense and aerospace analyst with Jefferies, told CNBC's "The Exchange" that Boeing will experience profit losses in its second quarter.
"What we watch out for longer term risk is the 777X certification, that's expected sometime in 2020, how that progresses. We are viewing this as a shifting free cash flow from 2019 and doing our best to keep 2020 intact."
Despite the groundings, Raymond James said 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 international growth opportunities."