It’s been a nightmare 2020 for investors in Boeing (NYSE:BA), with shares down nearly 50% since the start of the year on manufacturing woes and pandemic-related issues.
The story took another turn for the worse this week with fresh questions being raised about Boeing’s 787 Dreamliner manufacturing quality. For investors betting on a quick turnaround, it’s getting a lot harder to see how Boeing shares get airborne anytime soon.
First the Max, now the Dreamliner?
Boeing’s reputation for quality took a hit in March 2019 when regulators worldwide grounded the 737 Max after a pair of fatal accidents. The company is still working to win recertification for the Max and get it airborne again, and the investigation into what went wrong raised a lot of questions about the safety culture at Boeing.
Now a second plane, the Dreamliner, is under scrutiny. Boeing late last month instructed customers to ground a handful of 787 airplanes after discovering “two distinct manufacturing issues” that, when combined, could leave the plane unable to withstand in-flight stress.
Boeing believes the problem is isolated to a small number of planes, but it admitted that a larger number of aircraft have one of the two issues. The Federal Aviation Administration (FAA) is now investigating, which could lead to an inspection of all 900 Dreamliners currently in service worldwide.
Also on Tuesday, Boeing said it has discovered another manufacturing issue involving the 787’s horizontal stabilizer. The company says the FAA doesn’t see the problem as a safety issue, and that it is correcting the planes that are affected, but the revelation is a fresh black eye for a manufacturer that is already fighting to restore credibility.
So far it doesn’t appear that the Dreamliner issues will lead to a fleetwide grounding of the aircraft, or be nearly as expensive for Boeing as the 737 Max debacle has been. But the issues could still take their toll.
A Bank of America survey late last year found that nearly 75% of respondents would try to switch flights if booked on a 737 Max. The fear now is that the lack of consumer confidence in that one airplane might evolve into a lack of confidence in Boeing.
Boeing, as one half of a duopoly with Airbus (OTC:EADSY), will continue to get orders. But lingering bad publicity can influence airline purchase decisions, and cost the company orders.
Given that aircraft manufacturers typically record the highest margins on later deliveries, if even a handful of purchase decisions go Airbus’ way instead of Boeing’s, it could impact the overall profitability of an airframe. Five years ago, the 737 Max and Dreamliner were expected to be among the best-selling aircraft of all time, but that is no longer a given.
