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Boeing stock sinks after its 737 plane sinks in Indonesia




Lion Air aircraft sit on the runway of the Soekarno-Hatta International Airport in Cengkareng, Jakarta, Indonesia, on Monday. A Boeing 737 Max aircraft, operated by Indonesia's Lion Air, crashed into the Java Sea with 189 people on board, making it the model's first crash and possibly the worst commercial aviation disaster in three years. . (Rony Zakaria / Bloomberg)

The price of shares of aerospace giant Boeing fell nearly 7 percent on Monday after one of its newest aircraft launched into the Java Sea off the coast of Indonesia with 189 people on board.

The new Boeing 737 MAX8 was operated by Lion Air, Indonesia's economic airline that has become a major international customer at a time when the Chicago-based company expects to expand its sales in Southeast Asia.

Lion Air had recently been authorized 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 transport.

With an investigation into the cause of the crash in its early stages, it is not known if the crash was caused by mechanical problems, human errors or anything else. According to press reports, Lion Air Group chief executive, Edward Sirait, said on Monday that the plane had a technical problem on a previous flight, but that it had been resolved "in accordance with the procedure."

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

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

The Boeing 737 MAX8 is a new version of a commercial airplane model that has flown for decades. The plane involved in the accident was delivered 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 general stock market rally for much of the past two years, driven in large part by new business lines in emerging international markets such as Indonesia. With nearly 4,700 orders from more than 100 international customers, the 737 MAX series is the best-selling aircraft in the history of Boeing.

According to aerospace analysts, the plane was a new version of a tried and tested model.

The 737s have transported passengers around the world since the 1960s, and the newer models are thoroughly tested before delivery, they said. While the 737 MAX8 is considered a new passenger plane, it is very well suited to previous versions of the Boeing 737. The 787 MAX models 8, 9 and 10 differ mainly in terms of the size of the fuselage and the number of seats.

"This design has had more than half a century of tremendous success," said Teal Group aerospace analyst Richard Aboulafia, "and there is a lot of evidence that is being done and a lot of experience with this particular model."

Even so, investors reacted sharply to the news. Boeing's stock price fell seven percent on Monday at noon, even when the main stock indexes had posted gains. Airbus, the European manufacturer that also sells commercial aircraft in Indonesia, also fell slightly.

The collapse on Monday could become a problem for both companies.

Lion Air is growing rapidly: according to the records maintained by the aeronautical consultancy Boyd Group International, Lion has 205 open orders for the Boeing 737 models, although that channeling includes only one MAX8 model that has not yet been delivered. Earlier this year, Lion announced that he would buy 50 new MAX-10 models.

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

He said he was surprised by the sharp drop in the price of Boeing shares, which he described as an "exaggerated" reaction from investors.

He also noted that Indonesia's oversight of its airline industry has been a concern in the past. It was only last June that Lion Air was considered safe to travel through the European Union.

"The problem for the EU was that they felt that the Indonesian government was not supervising and monitoring their airlines," Boyd said. "That caused a lack of confidence in the Indonesian airlines."

In 2012, two of its pilots tested positive for methamphetamine and were stopped hours before takeoff. In 2004, a Lion Air plane slid off the runway and crashed after it tried to take off under heavy rain, killing 31. Other Indonesian airlines have experienced their own problems, such as the 1997 accident of a Garuda airline that killed to 234 people.

Even before the facts of the accident are established, there has been an international reaction against the airline. The Australian government recently instructed government officials and contractors not to fly Lion Air after the accident, Reuters reported on 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 aviation consultancy Atmosphere Group. "It's a serious problem, and we have to find out what caused it, but completely new planes do not generally fall from the sky."


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