The effects of negative reputational contagion on international airlines: The case of the Boeing 737-MAX disasters

David Collings, Shaen Corbet, Yang (Greg) Hou, Yang Hu, Charles Larkin, Les Oxley

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The Boeing 737-MAX was created for the ultra-competitive environment of the aviation industry and advertised as capable of delivering an 8% reduction in fuel and a 14% reduction in CO2 when compared to the Next-Generation 737, a substantial saving for airlines. This research sets out to establish the interactions of price volatility, information flow and source of price discovery between Boeing and the airlines that were susceptible to reputational contagion due to the Lion Air and Ethiopian Air crashes, both involving the Boeing 737-MAX. Results indicate significant evidence of pricing interactions between Boeing's share price and those airlines with major 737-MAX orders and purchases, particularly those of low-cost carriers and leasing companies. DCC-GARCH estimates are consistent with a significant response to the second crash impacting on airlines, while the information flow and price discovery results present evidence that is consistent with the DCC-GARCH results, that is, that shocks in Boeing presented significant negative effects upon connected airlines. Further, analysts’ pricing errors are consistent with an industry caught unawares with regards to the first incident, but which slowly realised the broad sector implications following the second disaster. Financial markets quickly identified the 737-MAX with the disasters and adapted in response. Historical internal practices and decision-making at Boeing cannot be separated as the potential source of error spilling over into connected airlines.

Original languageEnglish
Article number102048
JournalInternational Review of Financial Analysis
Early online date26 Jan 2022
Publication statusPublished - 31 Mar 2022


  • Airlines
  • Contagion
  • Financial markets
  • Price discovery
  • Reputation risk
  • Volatility

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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