The “Blowout Effect”: An Analysis of the Financial Impact of a Near Catastrophic Aviation Event

Abstract

On January 5, 2024, a door plug blew out of an Alaska Airlines flight midair, leaving a hole the size of an emergency exit in the hull of the plane. Boeing and Spirit AeroSystems were found jointly responsible for this mishap, which grounded hundreds of flights. This situation raises an important question about which firms in the commercial aviation industry suffer the most from near catastrophes. This paper examines the “Blowout Effect” of this disaster on the commercial aviation industry and on two sectors: (i) aircraft manufacturers and (ii) airline companies. We use an event study methodology to analyze the returns of 19 aviation firms. The “Blowout Effect” did negatively impact share values across the commercial aviation industry, with a nearly 5% loss in company value. Additionally, every airline company experienced a financial loss, even though none of them were assessed any fault in the near catastrophic event. We find the 19 aviation firms cumulatively lost $27 billion of market capitalization which we attribute to the “Blowout Effect.”