Boeing (BA) has agreed to pay a $17 million fine to settle the Federal Aviation Administration (FAA) enforcement cases involving the 737 aircraft. Boeing stock rose 3.87% on Thursday to close at $250.70. The company is a leading manufacturer of aircraft with customers in defense and commercial airline markets.
The FAA found that Boeing installed equipment with unapproved sensors on 759 Boeing 737 MAX and NG models. Furthermore, the regulator found that the plane-maker submitted 178 Boeing 737 MAX aircraft for airworthiness approval while they potentially contained unapproved parts. The company is required to pay the fine within 30 days after signing the settlement agreement.
In addition to the penalty, the FAA requires Boeing to make multiple corrections to its manufacturing process. The company will need to make those corrections within specific periods, failure of which, the regulator will hit it with an additional $10.1 million fine.
“Keeping the flying public safe is our primary responsibility. That is not negotiable, and the FAA will hold Boeing and the aviation industry accountable to keep our skies safe,” said Steve Dickson, FAA Administrator.
Boeing must ensure that it doesn’t install unapproved parts on its planes and will also allow the FAA to monitor its production processes more closely, including the data it uses for its production rate readiness reviews. Furthermore, Boeing will need to tighten its oversight of its parts suppliers. (See Boeing stock analysis on TipRanks)
Morgan Stanley analyst Kristine Liwag reiterated a Buy rating with a price target of $274 on Boeing stock. The analyst’s price target indicates 9.29% upside potential. Liwag is bullish on Boeing due to the increasing number of airlines flying the 737 Max aircraft again following its grounding in April.
“There was 1 new airline that flew the 737 MAX in the past week. Excluding Boeing, there were 26 airlines that flew the 737 MAX 8, 6 airlines for the 737 MAX 9 and none yet for the 737 MAX 7,” noted Liwag.
Consensus among analysts on Wall Street is a Moderate Buy based on 7 Buy and 7 Hold ratings. The average analyst price target of $270 implies 7.70% upside potential to the current price.
BA scores an 8 out of 10 on TipRanks’ Smart Score rating system, suggesting the stock is likely to outperform the market.
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