Boeing, GE Stocks Sag on Delayed Flight Tests of 737 MAX

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Source: courtesy of Boeing Co.
A Monday afternoon report at Aviation Week sent shares of Boeing Co. (NYSE: BA) down sharply. The company had suspended test flights of the new 737 MAX 8 (737-8) for several days following the discovery of cracks in a section of the CFM Leap-1B engines that power the new plane.

The Leap-1B engine is built by CFM, a 50/50 joint venture between the General Electric Co. (NYSE: GE) and French engine maker Safran. The report also weighed on GE stock in Wednesday’s trading session.

Boeing has been ahead of its schedule for first delivery of the 737-8. Originally due late in the second quarter or early in the third quarter of this year, Boeing expects to deliver the first plane by the end of this month to India’s Lion Air.

According to Aviation Week, Boeing said the issue is a manufacturing quality control problem and is restricted to a specific batch of parts for the engine’s low-pressure turbine section, not a fundamental design flaw. Boeing and CFM say the issue is limited to fewer than 50 engines.

CFM makes three variations of the Leap engine: the Leap-1A for the Airbus A320neo family; the Leap-1B for the Boeing 737 MAX family; and the Leap-1C for the Comac C919 passenger jet made in China. CFM expects to deliver more than 500 Leap engines in 2017, rising to 1,900 in 2018 and 2,000 in 2019. Each aircraft, no matter which manufacturer, uses two Leap engines for each aircraft.

The test flights have been suspended for several days so far and are expected to resume soon.

Boeing stock closed at $183.18 Wednesday, down 1.25% for the day in a 52-week range of $122.35 to $187.21. The consensus 12-month price target on the stock is $188.05.

GE stock dropped 0.8% on Wednesday to close at $28.70, in a 52-week range of $28.19 to $33.00. The stock’s consensus price target is $32.57.