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Ethiopia Crash Challenges $55 Billion Stock Rally Of Boeing

Ethiopia Crash Challenges $55 Billion Stock Rally Of Boeing
Throughout the year, there has been an addition of $55 billion in market cap of aircraft maker Boeing as its shares rose by 31 per cent – the highest among the companies that make up the Dow index.
With sales reaching $100 billion for the first time in its 102 years, a record cash was generated by the company in 2018.
But following the accident of Flight ET302 plunged to the ground minutes after leaving Addis Ababa en route to Nairobi, Kenya resulted in a sharp drop in the Futures contracts on the Dow Jones Industrial Average Index — where Boeing has the largest weighting. The accident resulted in the death of all 157 people on board. In the last give months, this is the second crash of a Boeing 737 Max. As an instant reaction to the accident, all of the Boeing 737 Max crafts were ordered to be grounded by Chinese authorities temporarily while an indefinite ban on the use of the craft was ordered by Ethiopian Airlines.
Eleanor Creagh, a Sydney-based market strategist at Saxo Capital Markets, said that the increasing concerns over the safety of Boeing’s jets could also result in fall in shares of the company in the US and other markets. She estimated that more than 100 points from the Dow could be cut if there is even a 5 per cent drop in Boeing shares. There was an almost 7 per cent drop in Boeing shares last year following the crash of a Boeing aircraft of Lion Air plane in the Java Sea off the coast of Indonesia in which 189 passengers and crew were killed.
“Weakness transpiring in Boeing’s share price will hit the Dow," Creagh said. She said that recovery of the market from the lows of December was driven by the stocks of Boeing and accounted for one third of the rise of the index.
Stocks of the US based aircraft manufacturer gad increased by 31 per cent this year partly due to the positive indications and sentiments emerging out of the US-China trade talks. The rise in Boeing stocks was also buoyed by the record cash pile generated by the company in 2018 as sales crossed the $100 billion mark for the first time in its history.
The Ethiopian Airline accident took place at a time when signs of strain were being witnessed ion the rebound of the US stock-market. Mounting concerns surrounding global economic growth resulted in the biggest weekly loss in a year for the S&P 500 Index. There was is an aversion to risk taking in the market and the bar for positive surprises is now higher following a stock rally globally of more than $9 trillion after a low in December. Last week, there was a drop of 2.2 per cent in the Dow index where Boeing has an 11 per cent weighting.
Till such time that there is more clarity about the accident in Ethiopia and how the crash took place, there would be a “degree of weakness and volatility" in Boeing shares, said Morgan Stanley in a March 11 report. The bank further added that it is still not time to establish any links of the Ethiopian Airline accident with that of the Lion Air accident.

Christopher J. Mitchell

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