A 33% Drop in Boeing’s Risk Quotient Preceded a 73% Drop in its Stock Price

THEIA's Regulatory Risk Ranx (RRX™), an AI quantitative risk assessment solution, detected Boeing’s 33% drop in their risk score and 73% drop in stock price.

Risk factors from 10-K filing on 2016-02-10 highlighted by RRX™

Supplier Component Defects: Operational issues, including delays or defects in supplier components, failure to meet internal performance plans, or delays or failures to achieve required regulatory certifications, could result in significant out-of-sequence work and increased production costs, as well as delayed deliveries to customers, impacts to aircraft performance and/or increased warranty or fleet support costs.

Reliability Standards: “As a result, our ability to deliver aircraft on time, satisfy performance and reliability standards and achieve or maintain, as applicable, program profitability is subject to significant risks.”

Component failures leading to series of crashes forces ongoing turnover of CEOs

“Jan. 7, 2021: U.S. Justice Department charges Boeing with fraud but won’t prosecute the company for misleading regulators about the 737 Max if it pays a $2.5 billion settlement and tightens protections against violating fraud laws for three years.”

“Boeing has a leadership problem. While the company created a safety committee in response to the deadly 737 Max crashes a few years ago, and the board purged a number of high-ranking executives, Boeing’s culture has not changed. Indeed, an FAA audit of the company’s production of 737 Max aircraft conducted in the wake of the January Alaska Airlines incident found dozens of problems with Boeing’s quality-control practices.”

Repeated component failures lead to a series of 737-MAX crashes globally. Boeing’s RQ Score consistently was low relative to its sector, especially given Boeing’s extensive legal and regulatory resources, with red flags around supply chain issues pre-Covid. There were systematic product failure of 737 line, in part because of problematic suppliers, forcing the resignation of multiple business unit and corporate CEOs. Safety issues negated gains in fuel efficiency, showing the importance of governance risk in ESG considerations. Stock price fell 73% still trades 50% below pre-Covid plateau.

1 Cite: apnews.com
2 Cite: inc.com

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