Will Dreamliner Woes Stall Boeing?

by Susan J. Aluise | January 9, 2013 10:00 am

Will Dreamliner Woes Stall Boeing?

Boeing (NYSE: BA[1]) and its prized 787 Dreamliner have what could be (generously) described as a perception problem after three of the jets experienced serious glitches in as many days.

Boeing, its airline customers and federal safety regulators already were demanding answers after a Japan Airlines (PINK:JALFQ[2]) 787 parked at Boston’s Logan Airport caught fire and a battery subsequently exploded[3] on Monday. On Tuesday, a second JAL Dreamliner developed a fuel leak and returned to the gate. And on Wednesday, an All Nippon Airways plane saw its crew falsely alerted to a braking problem by the airplane’s warning system.

Electrical problems aren’t new to the 787. Last month, a United Continental (NYSE:UAL[4]) 787 en route from Houston to Newark was diverted to New Orleans because of a problem in the power distribution panel. A similar problem grounded a Qatar Airlines Dreamliner last month.

The 787 uses two lithium-ion batteries manufactured by Japan-based GS Yuasa rather than the common, but heavier, nickel-cadmium type. The FAA approved the new battery for aviation use in 2007 but issued special rules — including a requirement that they be designed to prevent overheating.

“This is a serious event for the Boeing 787,” Michel Merluzeau, an aviation consultant at G2 Solutions, told Bloomberg Television[5] Tuesday morning. “But I also want to emphasize that this is a different issue from the electrical issues that the planes have experienced over the past two months.”

The Dreamliner is no stranger to fuel leaks, either. In December, the FAA ordered airlines operating to inspect all planes in service for “improperly assembled” fuel couplings, which potentially could cause fuel leaks, loss of engine power or fires.

This week’s back-to-back-to-back glitches are particularly bad news for Boeing, which was just moving past three years of delays on the technologically advanced, carbon composite airliner. BA shares were down nearly 3% on Tuesday and could sink further if the National Transportation Safety Board (NTSB) announces a major investigation.

After three years of delays and countless controversies, Boeing appeared to have prepared the Dreamliner for takeoff into commercial service. It had opened a 787-production facility in South Carolina and resolved a National Labor Relations Board complaint that challenged its nonunion plant. The first Dreamliner rolled off the assembly line in May, and BA was optimistic it could rapidly boost production volumes.

Then the NTSB began looking into a rash of engine failures and electrical system glitches on 787s beginning last fall. Now, these new hiccups could create further jitters for Dreamliner customers — and perhaps even the flying public.

“It is a key year for the 787 because it is the year that we are going to turn the corner and start generating some positive cash flow for the aircraft program,” Merluzeau said. “The 787 has been under a considerable amount of scrutiny, so everything that happens to the aircraft gets immediately scrutinized, observed and analyzed.”

Bottom Line: Whether for good or evil, perception is a powerful thing. The onus is on Boeing to quickly allay concerns about the 787’s reliability. After all, the Dreamliner has an important role to play as a future workhorse of the airline industry — along with the new Boeing 737 MAX and competitive offerings like the EADS Airbus A320neo.

Last month, Boeing CEO James McNerney characterized the glitches as “consistent with other new airplanes we’re introduced.” Indeed, time likely will prove the airworthiness of the innovative Dreamliner. Still, too much bad buzz could stall Boeing shares in the near term — something the aerospace company can ill afford in a time of looming defense cuts.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

Endnotes:
  1. BA: http://studio-5.financialcontent.com/investplace/quote?Symbol=BA
  2. JALFQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JALFQ
  3. battery subsequently exploded: http://investorplace.com/2013/01/boeing-787-catches-fire-at-gate-in-boston/
  4. UAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UAL
  5. Bloomberg Television: http://www.bloomberg.com/video/boeing-787-fire-a-serious-event-merluzeau-says-gBF2H3ItTdKs4CTE9Zl~yA.html?cmpid=yhoo

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