Boeing's Biggest Blunder

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Alas, poor Boeing (NYSE: BA), I knew it well.

Too well. Earlier this month, I wrote a piece examining Boeing's credibility. Taking a microscope to Boeing's promise of an update on 787 "Dreamliner" deliveries, I predicted that when we did get the news, we wouldn't like what we heard.

Well, we've got the news. And -- surprise! -- investors didn't like it.

A credibility gap
Investors sold off Boeing shares to the tune of about 4% Friday when the company admitted that "wrinkles" in the "skin" of its new airliner are causing another production headache. Apparently, the problem originates with European aerospace giant Alenia, one link in a supply chain stretching from Honeywell (NYSE: HON) to United Tech (NYSE: UTX) to Spirit AeroSystems (NYSE: SPR), providing parts for the new airliner. Alenia's job is to build fuselage sections for the 787, and so far it's built upwards of two dozen such sections. At least 23 of the units, however, contained "microscopic wrinkles in the skin plies" just aft of the aircraft wings.

And Alenia's stumped -- even after cutting up two of the defective sections to perform an autopsy. After taking a good hard look, Alenia concluded that it cannot meet Boeing's stringent technical requirements so as to fix this problem once and for all. Boeing was not amused, and on June 23 ordered Alenia to halt production and try harder.

Hmm. June 23 you say?
Right. June 23. The same day that Boeing informed investors of a completely different problem with the aircraft's wings, canceled its first test flight, and brushed off impatient buyers like Delta (NYSE: DAL), Continental (NYSE: CAL), and AMR (NYSE: AMR), wondering when they'd get their planes, with a "we'll get back to you." Yet not only did Boeing not inform investors about the wrinkling problem then. It also failed to mention it when reporting earnings in July -- or since.

And this, Fools, is Boeing's real problem. It's not the added cost of performing cosmetic surgery to remove the 787's "wrinkles," nor even the new delay this will entail. It's the fact that after more than two years of delays, omissions, and flat-out obfuscation, that can no longer trust Boeing to play it straight with us.

Foolish takeaway
Experts warn us these wrinkles could cause the 787's fiber skin to "separate and tear." But while a tear in the airframe worries me, I'm more worried about the gaping hole in Boeing's credibility.

The 787 isn't Boeing's only problem:

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Fool contributor Rich Smith owns shares of Boeing. Spirit AeroSystems Holdings is a Motley Fool Hidden Gems selection. The Motley Fool has a disclosure policy.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 17, 2009, at 11:38 AM, duckdogers wrote:

    ...ya think Boeing would get this through their thick heads...don't do business with one of your ONLY competitors major contractors.

  • Report this Comment On August 17, 2009, at 11:52 AM, AustinPowers007 wrote:

    Speaking of credibility, why does the author of this article (Rich Smith) maintain his ownership position in Boeing stock even though he relentlessly bashes the company week after week? What's the explanation for this gaping credibility gap? It's time for Mr. Rich to put his money where his mouth is.

  • Report this Comment On August 17, 2009, at 11:57 AM, mariks1701 wrote:

    Okay enough, Boeing is still one of the Best companies in the U.S. and the world. Also does anyone else remember, over the past two decades how many Airbuses have crashed at airshows and commercially, most all have been mechanical failures. Boeing is trying to get it right! instead of putting an inferior product on the market. Planes are not disposable nor are the people who work or fly on them.

    Boeing does need to bring production back in house, to insure a reliable SAFE airliner for its customers and travelers.

  • Report this Comment On August 17, 2009, at 1:40 PM, botfeeder wrote:

    Boeing's woes are getting bad enough I am tempted to buy some stock.

    I think I'll wait for a little more carnage, though.

  • Report this Comment On August 17, 2009, at 1:58 PM, JobsForUSWorkers wrote:

    It goes back to OUTSOURCING 101.

    Short term thinking that is at the core of Manufacturing failure in the US and politicians looking for campaign dollars. The Idiot Clinton signed NAFTA without reading it and repealed the Glass-Steagle act another Bone head low IQ achievement of Slick Willy. I would like to know is it just greed or is becoming a Rhodes Scholar really mean you have brains or stupid friends that allow you to apply for it? Next time the American people vote they need to check out their leaders and who his behind the money like Tyson Chicken who was allowed to dump Chicken feces into Arkansas River if they backed Clinton.

  • Report this Comment On August 17, 2009, at 2:02 PM, JuliusCeasure wrote:

    Mr. Smith you are actually becoming amusing with your vehement objections to Boeing's every day affairs. Do you by any chance foam at the mouth as you make these rabid objections and prognostications - or are they pontifications? If you hate Boeing that bad sell your stock - or don't buy any of their stock - but one way or another you need to get a life!

  • Report this Comment On August 17, 2009, at 2:29 PM, markismarkymark wrote:

    Boeing should just say...Wrinkles in the skin... are voids in the composit skin due to the lay up, the improper use of the intensifiers..BUT THAT'S WHAT YOU GET WHEN YOU OUT SOURCE...Boeing's own people know that ..

    try a save a buck....what about saving BILLIONS in F ups by management

  • Report this Comment On August 17, 2009, at 2:37 PM, plange01 wrote:

    boeing is doing just fine and giving investors a rare change to buy its stock at a discount...

  • Report this Comment On August 17, 2009, at 2:48 PM, gfk2 wrote:

    So, of all the things that Boeing has done poorly, the fact that they did not disclose a manufacturing defect is their biggest blunder.

    Not bad I say. I can think of worse.

    Others to think about would be:

    1. The whole idea of globlalizing all the 787 work.

    2. Not setlling the machinist strike earler. or not having better union relations in the first place

    3. Outsourcing so much of their Information Technology support

    4. Moving their corporate headquarters

    5. Having the St.Louis people run the defense business

  • Report this Comment On August 17, 2009, at 2:51 PM, JetCityKnight wrote:

    Contrast the 787 with the 747-8 then you can see what the problems are. With the 787 Boeing changed their business model to outsource key components, engineering and design, basic construction from metal to composite, and changed IT systems from the tried and true and in house expertise. The 747-8 which is very much a new airplane: new wings, new avionics, engines, etc. the plane will probably have it's first flight before 787. The 787 strategy was probably some wet dream of an MBA without any technical background or appreciation of the years of institutional memory stored in Boeing's excellent engineering and manufacturing folks. Selling Wichita to spirit was another mistake that will be the next thing to come to a head. You don't sell off a part of your company to become your monopoly supplier.

  • Report this Comment On August 17, 2009, at 7:08 PM, 777737GSI wrote:

    Boeing was made with engineers and craftsman. Today, to many of the pencil brained Ivy Schools of the East Coast have invaded and distroyed another good company. In fact these clueless idiots are screwing up the whole country but that is another story. Boeing needs to put this 787 to bed, forget it, go with known technology and only use composits for smaller parts. Passengers and pilots like the reliability and history of metals, not fall of the airplane rudders like Airpuke of France. Why are we even dealing with the French, what have they ever done beside be a problem or surrender only to be rescued? Bring the jobs back to the USA, we are a USA airplane. If a component manufacturer cannot produce on time, terminate them and get someone in American to do the job. Be proAmerican!

  • Report this Comment On August 18, 2009, at 12:03 AM, EirikRaude2000 wrote:

    Dear mom and pops Day Traders: Sorry for all the delays but when a company so clearly steers toward mitigating the power of its unions and establishing an entirely new supply paradigm (sorry for the horrible cliche) while at the same time changing once and for all how mid-size aircraft are being built (oh, by the way: that's a formidable Engineering challenge, right?) what unexpected events have really occurred here?

    Come on, guys, and get out of the game if you cannot stomach the risks that such an endeavour necessarily must involve.

    I have been involved in Engineering projects by respectable companies that are insignificant by comparison, for most of my professional life, some of which have taken longer!!! to produce results than Boeing current B-H-A-G (Big Hairy Audacious Goal) and you guys keep whining about delays?

    Grow Up Already!

  • Report this Comment On August 18, 2009, at 10:03 PM, Luckyonetoo wrote:

    My question is: Could Boeing be a classic "value play". Think about it. When bad things happen to a good company that are temporary. Also good things are over the horizon. The original 747 had big time problems getting off the ground (pun intended). The Airbus A380 the big double decker airliner had its double share of headaches too. Anytime you try to press the boundaries of inovation you are bound to have growing pains. The delays could work to Boeing's advantage. By the time the 787 comes to market the economy will be picking up steam and the technical problems with production will all be solved. Now is the time to solve the safety issues while the plane is still on the ground not when it is in the air and you are trying to find buyers and passengers. I say it may be a good time to choose an entry point and buy some more (BA) not sell what you have!

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