General Electric: Should Investors Panic?

The stocks of General Electric are currently under massive pressure after the news surfaced regarding the cancellation of test flights for 737 MAX jetliner of Boeing caused by faulty engines. The CFM International (joint venture of GE and Safran) is the one handling such project.

Even without further investigations on the market and / or clarity about the issue, the market went agitated upon knowing the news. The stocks of General Electric this week traded at $28.53, the lowest in five days.  Aviation is an important sector of GE and any issue about it can drive the market tense. The head of Safran’s aircraft engines division, Olivier Andries, said that there were no issues found with the engine.

Boeing was scheduled to deliver on Monday the first 737 MAX to Malaysia’s Malindo Air but due to the trouble found on the low-pressure turbine discs, the plan was terminated.

However, it was later found out, after the inspections, that there is no technical issue with regard to the engine supplied by CFM and the quality issues lie on the low-pressure turbine discs, which can be corrected in weeks. GE staff already went to the site and has been checking the said concern. It is not a heavy issue that requires re-engineering or re-designing – as it has been said, it is a simple issue that can be settled by replacing the discs and acquiring the replacements from another supplier. What happened was the market overreacted to such minor problem that as per GE is no big deal and can be easily resolvable.

CFM Spokeswoman, Jamie Jewell, stated that Boeing can meet its schedule in delivering the 737 MAX aircraft within the month. There are at least 40 engine units that will be transported to both U.S. and France facilities of CFM for inspection and repair. Olivier Andries, further added that, the inspections can be done within a few weeks’ time and his team will do everything to ensure that the delivery can proceed in May.

Boeing must be able to meet the target delivery date since the airplane deliveries cost an amount of $110 million – such is, indeed, a crucial step for Boeing since a great deal of money is at stake.

For General Electric, it is important to note that the issue does not lie on the design of the engine. The fall in stock price has been driven by investors’ fear. 

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