There are plenty of witty plays on words for the bad run of luck that 2013 has brought to Boeing (NYSE:BA): the Dreamliner is a nightmare, Boeing's stock is crashing and many more witticisms that may be unfair. One thing is certain: Boeing is not having a good 2013 thanks to the company's newest aircraft, the 787 Dreamliner.
Aviation insiders have called the Dreamliner the most technologically advanced passenger aircraft ever made, but that came at a cost. September 2011 marked the first delivery for the aircraft, but that was three years late and billions of dollars over budget.
Airlines around the world placed 848 orders; to date, Boeing has only delivered 50. Even worse, because of recent events, all deliveries are on hold until Boeing solves technical issues with the aircraft.
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On Jan. 7, a fire broke out at Boston's Logan Airport. Investigators traced the fire to a Dreamliner's lithium-ion battery in a compartment that housed an auxiliary power unit. The next day, a fuel leak caused a Japan Airlines flight to abort, again at Boston's Logan Airport.
Finally, a Japan Airlines flight had to make an emergency landing after pilots noticed a message in the cockpit indicating a battery problem. After landing, an inspection revealed fire damage to the battery. This prompted Japan Airlines and All Nippon Airways to ground their fleets of 787s.
Up until this final incident, safety officials had been silent. New aircraft often have small technical problems. With 50 aircraft in service, a couple of aircraft experiencing relatively minor problems was nothing that indicated a systemic issue.
On Jan. 16, the Federal Aviation Administration (FAA) grounded all Dreamliners until the problems connected to the lithium-ion batteries could be traced. Although the FAA only has jurisdiction over U.S. airspace, most aviation authorities around the world follow FAA directives. This effectively grounded all Dreamliners.
The investigation into the cause has, so far, revealed nothing. National Transportation Safety Board investigators reported that the battery that caught fire in Boston functioned properly.
Officials hoped that the battery was faulty or overcharged because these problems would be a relatively easy fix. Instead, the investigation will turn to areas that would require larger, more costly fixes.
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Investors want to know what will happen to the stock. Since the first incident in Boston, the stock is down only 2.59%. Because of the latest Dreamliner troubles, Wall Street analysts have downgraded the stock, and BB&T (NYSE:BBT) downgraded the stock twice in recent weeks - first, from "Buy" to "Hold" and more recently from "Hold" to "Underweight."
BB&T believes that the battery issue is significant. It advises investors not to start new positions in the stock until Boeing addresses the issue to regulators' and Wall Street's satisfaction. Goldman Sachs (NYSE:GS) also removed Boeing from its conviction buy list, citing the current Dreamliner issues.
Could the Dreamliner bring down Boeing's stock? Probably not. Boeing bulls point out that despite a string of bad news and analyst downgrades, the stock is down only 2.59% and the idea that airlines will cancel orders is probably not accurate.
Not only do airlines understand that problems with new aircraft are normal, but canceling the order means starting at the bottom of the waiting list for another aircraft. For those further down the waiting list, the current problems along with future issues will be solved long before they take delivery of their 787s.
With a backlog of 848 aircraft, Boeing may experience short-term, far-too-public issues with the Dreamliner. Investors know that once Boeing addresses these growing pains and any future issues, the Dreamliner will be a revenue driver.
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The Bottom Line
Should you buy Boeing right now? BB&T may have it right in advising to wait until the headwinds are gone. Companies knee-deep in negative press are not a good place to be for most investors. Even the pros are largely staying away.
At the time of writing, Tim Parker did not own any shares in any company mentioned in this article.