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Bank of America Merrill Lynch has cut its outlook on Boeing, saying the airline manufacturer’s recent troubles with its 737 are worse than expected. Boeing shares tumbled nearly 4.5% on the move.
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Two crashes of the Boeing 737 Max 8 forced the company to cut its production rates. BofA now estimates delays with the 737 now will lost six to nine months, longer than the three- to six-month delay originally forecast.
BofA cut its rating on Dow component Boeing from neutral to buy and lowered its price objective to $420 from $480.
The company’s issues stem from crashes of Ethiopian Airlines flight ET 302 and Lion Air flight JT 610 over the past six months. Questions have been raised about the safety of the Max 8 and 9 jets as well as the general oversight being provided by the Federal Aviation Administration.
“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.
Though still up 21.5 percent year to date, Boeing’s shares have fallen nearly 9 percent over the past month.
In addition to the initial 737 Max delays, BofA estimates it will take Boeing through 2021 before the company catches up to delivery orders for its aircraft.
“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,” Epstein wrote.
Boeing is reducting its production of the 737 Max to 42 per month, down 10 from its original target.