Boeing’s Crash Landing On Wall Street
Investigating the Causal Relationship Between Crashes and Market Performance
by Devinachhajer, Diya Patel, Ishika Gupta, Kaitlyn Ho, Tanvilamba
Introduction
In 2024, Boeing, once an aviation giant, has been making headlines for all the wrong reasons. From emergency exit doors blowing away to defective parts and tires falling off, the company’s reputation has taken a nosedive. Once holding over 50% of the market share, Boeing now stands at a mere 35%, with a significant blow coming from the tragic accident of Ethiopian Airlines flight 302 in 2019. In the face of this downturn in reputation, stock prices, and market share, an investigative approach is necessary to uncover any causal relationship between Boeing’s stock performance and these accidents.
Exploring Stock Price Fluctuations
Analyzing the stock price fluctuations surrounding the two 737 Max crashes in 2018 and 2019, as well as incidents like the Alaska Airlines door blowing away, reveals that Boeing has struggled to regain its initial market valuation. Meanwhile, competitors like Airbus and the Airline Index have shown consistent growth, except for pandemic-related disruptions. Leveraging data obtained from Yahoo API and Python, we scrutinized historical stock prices for Boeing, Airbus, and the Airline Index. To facilitate a meaningful comparison, we standardized the closing price units across the entities. The resulting graphs offer a revealing glimpse into how each entity navigated through turbulent times.
In the aftermath of the Lion Air crash in 2018, both Boeing and Airbus witnessed a dip in their stock prices. However, the impact differed significantly. While Boeing struggled to regain its footing amidst mounting concerns and regulatory scrutiny, Airbus weathered the storm relatively well, with its decline partly attributed to legal proceedings. Interestingly, the Airline Index remained largely unaffected, underscoring the resilience of the broader aviation sector.
The subsequent Ethiopian Airlines crash in 2019 further exacerbated Boeing’s woes, leading to a pronounced downturn in its stock price. In contrast, Airbus and the Airline Index demonstrated a more stable trajectory, with Airbus even showing signs of growth. This divergence in performance sheds light on the nuanced dynamics within the aviation industry and underscores the enduring challenges facing Boeing as it strives to regain market confidence and momentum.
Impact on Revenue & EBIT
The aftermath of the 2018 crash dealt a significant blow to both Boeing and Airbus, with a notable decline in revenue and earnings before interest & tax (EBIT) spanning from 2018 to 2020. However, Boeing bore the brunt of the impact, experiencing a staggering 43% decrease in revenue and a monumental 277% decline in EBIT during this period. While Airbus also witnessed a decline in revenue and EBIT, the magnitude of the downturn was not as severe as that faced by Boeing. This stark contrast underscores the profound challenges Boeing grappled with in the wake of the crisis, highlighting the need for robust strategies to navigate turbulent times and safeguard long-term financial resilience.
Impact on Orders and Cancellation of Boeing’s aircrafts
The Boeing 737, comprising approximately 80% of Boeing’s gross orders and cancellations, faced a tumultuous period marked by significant shifts in market dynamics. From 2018 to 2020, there was a notable downturn in gross orders, particularly affecting the 737 models, which accounted for approximately 90% of these orders. Concurrently, cancellations surged, witnessing a staggering 241% increase from 2019 to 2020, with a striking 98% of these cancellations attributed to the Boeing 737. Despite these challenges, the 737-model managed to maintain a marginal increase in gross orders amidst the broader fluctuations in the aviation industry. These trends underscore the enduring impact of the crisis on Boeing’s order book and the unique challenges faced by its flagship 737 aircraft, necessitating strategic adaptations to weather the evolving market landscape.
Sentiment Analysis
For sentiment analysis, we collected approximately 30 articles pre and post incident for each incident. We used the scraper.io extension to scrape the data from the articles and stored it in an excel file.
To obtain a comprehensive analysis, we expanded our dataset to include additional articles and data addressing news from social media platforms such as Reddit and Quora. Prior to the occurrence of incidents 1 and 2, approximately 40% of articles exhibited a positive sentiment for both. However, for incident 3, there was a notable decline in the existence of positive sentiment articles even before the incident occured. This decline may be attributed to a potential ripple effect stemming from the gravity of incidents 1 and 2, both of which were major crashes resulting in no survivors.
Through the pie-charts for post-incident, it is evident that following the occurrence of the first incident, there persisted some positive sentiments among the public. However, subsequent post-incident articles addressing incidents 2 and 3 portrayed a distinct perspective, with all articles adopting a negative tone in response to both incidents.
Sloping Sentiment
It can be seen from the slope graph that Incident 1 has the lowest proportion of positive articles with its average negative sentiment score before and after the incident rising significantly. Incident 2 did not show a lot of change in average negative sentiment but for incident 3, average negative sentiment increased.
Analyzing Pre- and Post-Incident Sentiment
Examining the sentiment and dominant topics in the days leading up to and following the crash provides valuable insights into public perception. Immediately after the March 2019 crash, both public sentiment and the stock price experienced a decline. Despite Boeing releasing a statement, sentiment continued to decrease. The statement primarily focused on airlines, crew, and passengers, suggesting a broader discussion on aviation themes such as airline operations, crew responsibilities, or passenger-related concerns. Strikingly, there was minimal mention of the crash itself.
In the days following the incident, discussions centered around topics such as Federal Aviation Administration (FAA) compliance, software enhancements, company updates, and ongoing support efforts. Despite the gravity of the incident, both public sentiment and stock prices began to regain strength about 1 week later.
The initial decline in prices proved to be transient, indicating a temporary impact rather than a sustained downturn.
Topic Modeling — Analyzing Boeing’s response
The range of topics covered in the aftermath of the crashes underscores the multifaceted nature of the challenges faced by Boeing. From technical discussions on FAA compliance and software enhancements to updates on company efforts and customer support initiatives, the discourse reflected a comprehensive approach to addressing the issues at hand.
However, there were glimpses of positivity. On March 18th, 2019, as discussions turned towards supporting those affected by the Lion Air incident, public sentiment began to rise, accompanied by an uptick in stock prices. This suggests that proactive efforts to address customer concerns and demonstrate commitment can yield positive outcomes, even in the face of adversity. This could also be because of the aforementioned point of transient decline instead of sustained downturn.
Establishing Causality
To delve deeper, it is crucial to establish a causal relationship. Comparing Boeing with its rival Airbus, there was a consistent relationship between the two before the March 10th, 2019, accident. This observation provides a foundational understanding for further investigation.
Taking a window of three days surrounding the accident, it becomes apparent that an approximate 10% loss in market valuation can be directly attributed to the incident. This substantial loss underscores the significant impact of the accident on Boeing’s financial standing and market perception. The pre-period parallel trend assumption holds true for Airbus based on hypothesis testing (t-test): p-value of 0.021 and R2 of 0.999.
Stock Price Stickiness
When a significant event like the 737 Max crash occurs, it leaves a lasting impact on stock prices. Interestingly, the effects aren’t fleeting; they linger for about 11 days following the incident, persisting until March 22nd, 2019. This phenomenon, known as “price stickiness,” highlights the reluctance of investors to swiftly recover from such crises (fig 3.1). Despite efforts to restore confidence, stock prices struggle to return to their pre-crash levels immediately. However, there’s a glimmer of hope amidst the uncertainty: a gradual upward trend emerges in the aftermath. This trend underscores the resilience of the market, showing that while setbacks may initially shake investor confidence, recovery and growth eventually prevail. It’s a fascinating insight into the dynamics of financial markets, reminding us of the intricacies and resilience inherent in the world of investing.
Conclusion
The investigation into the causal relationship between Boeing’s stock performance and aviation incidents highlights the complexities at play. While direct causality may not be easily discernible, this analysis underscores the importance of proactive communication, regulatory compliance, and commitment to safety and customer support in navigating turbulent times. As Boeing strives to regain trust and market confidence, lessons learned from this investigation can serve as a guiding light for the future.
Looking ahead, there’s a crucial opportunity to assess Boeing’s preparedness in handling future crises and to recommend targeted strategies aimed at rebuilding public trust and confidence. By delving into the measures implemented by Boeing and other aircraft manufacturers who have faced similar challenges, we can glean valuable insights into effective crisis management tactics. Additionally, expanding our analysis to include other aviation accidents allows for a deeper understanding of Boeing’s response strategies and the corresponding sentiment from the public. By leveraging these insights, Boeing can develop comprehensive and proactive approaches to address potential crises, foster transparency, and ultimately regain the trust of both consumers and investors. This proactive stance not only positions Boeing as a responsible industry leader but also underscores its commitment to safety and accountability in the aviation sector.
To view the complete analysis as well as the dataset used, follow the GitHub link.
We would like to thank Professor Unnati Narang for her constant guidance and support.