Boeing, GE Aerospace: Air India Crash; Fair Value Estimates Unchanged

Following the deadly crash just after takeoff from Ahmedabad Airport of an Air India Boeing 787-8 powered by GE engines, we expect multiple investigations into the cause. In June 12 premarket trading, shares of Boeing dropped BA some 6%, while GE Aerospace GE stock fell about 4%.

Key stats: Air India Flight 171 was a Boeing 787-8 powered by two GEnx-1B67 engines, a configuration that entered service in 2012 with over 725 in operation. The aircraft registered as VT-ANB was delivered in 2014 and operated by Air India on some 7,400 flights over 39,000 hours. The crash is the first fatal incident involving a Boeing 787.

Why it matters: Fatal aircraft failures are extremely rare, but no less tragic and alarming when they occur. Investigations into their root cause usually take several months and may yield prescriptions for enhancement of the safety practices of the aircraft’s manufacturers, equipment, operation, and maintenance.

• Enormous effort and expense go into the redundant safety systems and procedures that make air travel statistically the safest mode of transport. For an airplane accident to occur, multiple things have to go quite wrong—and that is by design.
• It’s too early to say what caused Air India Flight 171 to crash, though apparently several things reportedly went wrong: Immediately after takeoff, the pilot reported an emergency, noting lack of thrust. The flight reached a maximum altitude of just 425 feet above the runway and crashed into a residential building seconds later.

The bottom line: We have not altered our forecasts for wide-moat-rated manufacturers Boeing or GE Aerospace. We do not anticipate doing so, as we believe it’s improbable that a systemic design or manufacturing flaw of this successful aircraft or its engines is at fault.

• We see no relevant connection to the troubling aftermath of two 737 MAX crashes or the few previous incidents the 787 did have, which did not relate to thrust at takeoff.