Investors interested in artificial intelligence got the news they wanted, as Nvidia continued to show dominating performance in the tech sector. Yet even though major benchmarks initially jumped Thursday morning on the news, the gains proved short-lived. By midday, indexes were sharply lower, with the Nasdaq Composite falling more than 1%.
As important as AI is, it doesn't define the entire economy. Other more troubling trends were responsible for some concerns among investors on Thursday, and one of them involves manufacturing companies looking to keep up with strong demand in various industries. That's true in the semiconductor space, but the aerospace and defense industry is also seeing some challenges in meeting the schedules its customers expect. Below, you'll learn why Boeing (NYSE: BA) and Spirit AeroSystems (NYSE: SPR) led markets lower on Thursday.
Boeing expects delays
Shares of Boeing were down almost 4%. The news came as the aerospace giant made an announcement that will likely result in further delays in delivering its popular 737 MAX line of aircraft.
Boeing has found a quality problem in the aft pressure bulkhead of the 737 MAX. The airplane manufacturing giant said that it has done the necessary analysis to gain a full understanding of the problem, and it believes that it knows what it needs to do to fix it. Boeing doesn't believe that there's any safety concern for aircraft that are already in service.
However, it will take time for Boeing to remedy the situation. That will mean at least short delays in delivering affected 737 MAX aircraft to the airlines and other companies that have ordered the planes. Perhaps more troublingly, it represents just the latest in a string of quality control concerns that have plagued Boeing and the 737 MAX in recent years.
Boeing has hoped to accelerate the pace of production and delivery of 737 MAX and other aircraft. This latest problem could draw more scrutiny of those plans, particularly with respect to Boeing's relationship with its suppliers.
Will Spirit and Boeing still get along?
The issue is potentially even larger for Spirit AeroSystems because it was responsible for the aft pressure bulkhead that proved problematic. Reports suggest that the bulkheads had a large number of drill holes that weren't properly aligned, and Spirit explained that one of its own subcontractors apparently incorrectly placed the holes. Because other subcontractors did the job correctly, not all of the 737 MAX bulkheads supplied by Spirit have the problem.
However, this isn't the first time that Spirit and Boeing have had to deal with quality control struggles. Earlier this year, Boeing said that Spirit hadn't correctly installed the brackets that affix the tail of the 737 MAX to its fuselage.
Moreover, it's still unclear just how many aircraft the problem could affect. Although the 737 MAX 8 is definitely known to have instances of defective components, Boeing is looking at other models to confirm their proper construction.
Spirit relies on Boeing for its business, and so it's not surprising to see Spirit shares fall 15% in light of the news. It tends to take time for big companies in the manufacturing sector to change suppliers, so Spirit's relationship with Boeing likely isn't in imminent danger. However, there are only so many problems that a customer will put up with before it starts to look for alternatives. With airlines scrambling to buy aircraft, Boeing is in the driver's seat, but it needs to step up to the plate and deliver on its orders. To do that, Spirit needs to get its affairs in order as fast as it can.
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