Boeing revelations could cost shareholders $53 billion

  • Wall Street analysts on Monday downgraded Boeing’s stock and said the company’s market value could drop $53 billion.
  • A UBS analyst estimated the company could lose $8.5 billion in cash flow over the next five years.
  • Famed consumer advocate Ralph Nader said Boeing CEO Dennis Muilenburg should go.

Boeing’s revelation late last week that a company test pilot had a strong indication that a system meant to prevent the 737 Max from crashing had “egregious” issues could cost the aircraft maker and its investors tens of billions of dollars, according to Wall Street analysts.

Both of the analysts, from UBS and Credit Suisse, downgraded the stock. The two also independently cut their price targets for Boeing’s stock by $95, suggesting that the new safety evidence — and the growing legal and reputational hit to the company — could slice as much as $53 billion from the company’s total worth.

The test pilot messages, and the disclosure last week that Boeing has known about them for months, has also sparked new calls for the company’s top executives to resign. Consumer advocate Ralph Nader, whose grandniece was killed in the March crash of an Ethiopian Airlines flight, told CBS MoneyWatch on Monday that Boeing CEO Dennis Muilenburg, as well as the company’s entire board for directors, should go.

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“They need a new team,” Nader said. “The bosses and board at Boeing were complicit with what happened. It’s a conflict.”

Boeing did not return a request for comment on Nader’s statement.

Boeing announces revenue drop since deadly 737 Max crashes

The analyst downgrades come as Boeing prepares to announce earnings later this week. The company is expected to have earned $1.5 billion in the third quarter of this year. But UBS analyst Myles Walton said those earnings were in jeopardy.

He predicted the issues with the 737 Max, and the damage the episode has done to Boeing’s reputation, could lower the company’s cash flow by as much as $8.5 billion in the next five years. Walton said his “working assumption” was that the 737 Max crashes were a result of “poor assumptions.” But there is growing evidence to suggest that Boeing knew there was a problem and didn’t disclose it, and that’s a much bigger issue, Walton told clients.

Boeing shares fell 3.8%, or $12.94, on Monday to $331.06, adding to the sharp drop in the stock price during the past month. The stock entered October at just under $390.

The stock drop shows that Boeing’s efforts to steady itself in recent months haven’t fully reassured investors. Earlier this month, Boeing’s board stripped Muilenburg of his dual role as chief executive and chairman and elevated the company’s lead director, David Calhoun, to chairman.

The company seemed to believe that would appease shareholders and critics, who have questioned whether Boeing has been upfront with shareholders about its problems with the 737 Max and whether it has moved fast enough to correct the issues.

Family members of 737 Max crash victims demand safety reforms at congressional hearing

Instead, Calhoun’s appointment has raised new questions about Boeing’s leadership. Besides taking on the Boeing chairmanship, Calhoun is also the lead independent director at construction equipment giant Caterpillar as well as chairman of the board of Gates International, which makes power transmission systems and has 15,000 employees worldwide. And that is all on top of Calhoun’s day job, being a top executive of Blackstone, the largest private equity firm in the world.

“Shareholders of Boeing and Caterpillar should be concerned,” said Charles Elson, a corporate governance expert at the University of Delaware. “It would be ideal if he would step down from one of these roles.”

Nader called Boeing’s chairman and CEO split a “sop to shareholders” and a move that protects the company’s management. He said he believed Muilenburg was still essentially in charge, but he also predicted whistleblowers are likely to emerge and that could put more pressure of the company to make real changes.

“Boeing is in a tremendous crisis,” Nader said.

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