What Every Investor Needs to Know About Boeing Stock After Flight 1380

Yesterday afternoon was a typical day here at Money Map Press' offices in downtown Baltimore - that is, a busy day.

But like a lot of other folks here, when I saw the news out of Philadelphia, that a stricken Southwest Airlines Inc. (NYSE: LUV) Boeing 737-700 had made an emergency landing at the airport there with one fatality, I stopped to watch.

The images to emerge from Flight 1380 were, I'm sure you'll agree, horrifying. So are the stories.

News outlets are still reporting the only thing anyone can tell at this very early juncture: The 737-700's port-side engine had what the experts call an "uncontained engine failure" at cruising altitude, around 20 minutes after takeoff from New York's LaGuardia Airport. Shrapnel or debris from the explosion flew back and punctured the fuselage, shattering a window, which resulted in a female passenger, a 43-year-old banker from Albuquerque, N.M., nearly getting sucked out of the decompressed aircraft.

Her fellow passengers managed to pull her back inside, but tragically, she died - the first fatal accident aboard a U.S.-registered airliner since 2009, and Southwest's first fatal in-air accident.

The loss of life is terrible, and we're all thinking of the woman and her family.

What happens next is for National Transportation Safety Board (NTSB) investigators to decide.

My job, right now, is to help you make sense of what this means for your money, so that's what we'll do today.

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Here's What the Media's Not Getting

Around 24 hours after the accident, the media are beginning to focus on Boeing and the destroyed engine. That's only natural. But what might not be immediately obvious is that there's a lot of underreporting and overreacting going on here.

You see, I've been voraciously interested in aviation, flying, since I was a little kid. And Boeing, as you probably know if you're a Money Morning Member, is one of my favorite stocks.

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So I can see right away what the media aren't really getting here. Yes, the 737-700 is a Boeing aircraft... but the engine was manufactured by CFM International - specifically, a CFM56-7B24 turbofan engine in service for around 40,000 flights, 10,000 of which are said to have happened after its most recent overhaul.

This model has been in use in one form or another since mid-1974. In the 1980s, the CFM56 experienced "flameout" issues in heavy rain and hail. In subsequent years, fan blade failure became a problem, and in 1989 it led to the crash of a British Midland 737-400, which killed 47 passengers.

Fan blade failure is a particularly hairy, dangerous problem. When running at full power, the fan on a CFM56 can spin at a dizzying 5175 RPM. If one of those blades breaks and flies free, the effects on the thin aluminum skin of the plane can, and probably will, be catastrophic.

As I said, it's too early to know for certain, and investigators say it may be 15 months before their work is complete here, but I wouldn't be surprised if we learned that a fan blade failure of some kind led the to the disaster on Flight 1380.

The important thing for us to remember is: This is a CFM problem, as opposed to a Boeing problem. We may see Boeing shares fluctuate a bit more than usual in the coming days as the market digests what's happened and comes to the same conclusion.

What to Do Right Now

This could impact Boeing in the near term, but it does absolutely nothing to dampen the massive, $6.2 trillion global demand cycle for jets as Western defense budgets rise, and increasingly crowded, increasingly wealthy Asia takes to the air.

It won't impact Boeing's high chances of success in the drone market that I expect will be worth $127 billion by 2020 (click here to check out my presentation on that).

We saw a similar "market misapprehension" back in 2013, when lithium-ion batteries aboard the then-brand new Boeing 787 "Dreamline" caught fire. The stock price plummeted, and analysts called for Boeing to throw in the towel.

I saw the problem for what it was: a temporary setback and, most importantly, an opportunity to build an even bigger position in BA shares.

The stock has gone on to soar more than 400% since. Boeing's been here before. So have we. Use any dip in the stock as a chance to accumulate.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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