Two Boeing planes have crashed within the last five months, the second on Sunday the 10th. Breaking now on Twitter, the United Kingdom has joined other countries, including Australia, China, Singapore, Indonesia and (ironically) Malaysia, in grounding the 737-Max 8 models pending review. About 350 of the Max 8’s are in service, and as airlines check hardware and plane black boxes, everyone looks to the potential danger of auto-drive / auto-flight software.
Boeing Company (NYSE: BA), however, is not actually being destroyed on the stock market. Their stock is only down by 6.7%, and, factoring in a strong showing before the crashes, BA still squeaks out ahead over monthly and yearly windows. BA’s drop today is also somewhat nuanced. The company was due for a downward correction after rapid, 73 point growth since December. Further, the company’s contracts with commercial airlines and fleet of planes are not easy to replace: each Boeing 737 Max-8 is worth about $54.5 million in investment. Moreover, the fat military and government contracts given to BA are an easy and reliable source of IV-drip money.
Reflecting for a moment, how does one price a commodity, good, service, or product when its safety is poorly known? A friend and former art-dealer shared a story about his time in West Africa and Mali. In those days, one first flew Air France to Dakar or Lagos, and then transferred to Mali Airlines. This airline had a well-established alias: Maybe Airlines.
We can collapse this case into the ‘used car salesman’ example. So, customers will initially pay a price between a peach (good car) and a lemon (bad car). Once enough suckers are left holding lemons, new customers will cynically refuse to pay above the lemon rate. When economic agents have only their money at stake, they’re willing to take risks that they’d never stake their lives on.
Then again, we’re not all agoraphobes, and we’re probably more likely to get struck by lightning. Boeing is a well-known company. No company can take the risks out of whizzing around in a metal box in the sky. Buy the lemon. Consider the lemonade. Drink the kool-aid.