Dreamliner Defects: More Problems Arise for Boeing

Three more Boeing (NYSE: BA  ) 787 Dreamliners suffered debilitating technical problems this week, adding to a string of recent setbacks for Boeing's flagship jetliner. Two Dreamliners belonging to Japan Airlines were forced to turn around mid-flight due to systems malfunctions, while a Dreamliner operated by Norwegian Air was grounded for at least a week so that Boeing can perform maintenance to bring the chronically delayed aircraft up to better reliability standards. While the Dreamliner's troubled history has so far not hurt the company's stock price, concerns over the jet's dependability may finally be catching up to Boeing.

Even before its launch the Dreamliner program was troubled: the first deliveries of the plane were more than three years late. Since the launch of the high-tech 787 Dreamliner, the most advanced plane Boeing has ever built, headlines have been dominated by the plane's unreliability -- most spectacularly when the worldwide Dreamliner fleet was grounded for three months in 2013 due to safety concerns.

Despite these concerns, on paper the Dreamliner boasts such impressive fuel efficiency and passenger comfort that airlines have been content to weather the "glitches" that can be expected with a revolutionary new product. So throughout a period of negative publicity, orders for the futuristic plane continued to pile up, making the Dreamliner the fastest-selling plane in Boeing's history and allowing Boeing's share price to soar above the bad headlines.

However, airline customers are becoming impatient as the 787 is now nearly two years into service and the reliability problems that Boeing CEO Jim McNerney once dismissed as "squawks" are still causing revenue-losing delays and cancellations. The grounding of Norwegian Air's 787 is a striking example. Norwegian Air only has two 787s, and it's other 787 was just grounded for repairs last week, due to an abysmal on-time rate. Norwegian Air had planned to launch its long-haul operations on the back of its two new-bought 787s, and the failure of both planes has presented a significant setback.

The small airline got a boost in its dispute with Boeing after International Lease Finance Corporation, the company that leases the two Dreamliners to Norwegian Air, demanded that Boeing get the aircraft back into working order. International Lease Finance, which buys aircraft and leases them to airliners and other customers, is one of Boeing's largest customers. It's CEO Henri Courpron told Reuters that the 787's performance "has got to improve: it can't keep doing what it has been doing and its been very frustrating." It's hard to believe that sentiment won't factor in to the company's next major purchasing decision.

For some airlines, the reliability of Boeing's new products is already weighing into purchasing decisions. This week, longtime Boeing customer Japan Airlines awarded a massive order to Airbus over Boeing for the first time in the company's history when it decided to replace its aging 777 fleet with Airbus A350s. Japan Airlines has claimed that Boeing's service problems did not determine its purchasing decision, but analysts like me are free to regard that claim with skepticism.

Japan's other major carrier, All Nippon Airways, has left less to the imagination, with its head Shinichiro Ito making it clear that the airline would consider on-time deliveries and performance in its own purchasing decisions. That seems a clear signal that if Boeing products continue to disappoint their operators, another major Boeing customer will defect to Airbus. With an existing backlog of over $400 billion, these sales losses aren't hurting the stock yet, but Boeing's difficulties in successfully rolling out the 787 are already catching up with the company's order book. If Boeing can't fix its products quickly, it's only a matter of time before the stock feels the pain as well.

The bright side
While Boeing has a big problem to tackle in reassuring its customers that its new products are reliable, bulls can take comfort in Boeing's record-breaking $410 billion order backlog, enough to keep the company busy for years. With global passenger travel historically increasing faster than the rate of global economic growth, Boeing could push this record backlog even higher in the event of a sustained recovery. The Motley Fool has compiled a special free report, "3 Strong Buys for a Global Economic Recovery," detailing how Boeing and two other companies are poised to profit from a faster recovery. Click here to read the full report!


Read/Post Comments (10) | Recommend This Article (2)

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 October 11, 2013, at 1:22 PM, sagebrush52 wrote:

    To Daniel Ferry, better get your facts straight now the Norweigian air line people have nothing but praise for the 787 eith their Gold Service plan that they purchased from Boeing and 15 people from Seattle fixed anything wrong with plane. Get off Boeings back your freaking Commie. I don't see you cutting Airbus like they are God or something. And sick and tired of your staff bragging up Tesla every freaking day. They are Nothing. Absolutely nothing compared to the number of cars and trucks sold everyday. Were not buying them so quit trying to cram them down everybodys throat.

  • Report this Comment On October 11, 2013, at 1:27 PM, joesamuel wrote:

    I thought Osama told us "You didn't build that, someone else did". So how could it be Boeings fault

  • Report this Comment On October 11, 2013, at 1:36 PM, SeniorMoment wrote:

    It is a sad comment on some Americans that a report that states nothing but what has already been published is described as "your freaking commie".

  • Report this Comment On October 11, 2013, at 1:39 PM, ranjeet1 wrote:

    To Daniel Ferry, better get your facts straight now the Norwegian air line people have nothing but praise for the 787 eith their Gold Service plan that they purchased from Boeing and 15 people from Seattle fixed anything wrong with plane. Get off Boeings back your freaking Commie. I don't see you cutting Airbus like they are God or something. And sick and tired of your staff bragging up Tesla every freaking day. They are Nothing. Absolutely nothing compared to the number of cars and trucks sold everyday. Were not buying them so quit trying to cram them down everybody throat.

    I agree 1001% what is said here. Daniel, find a job as a used car salesman. You will have lot to write about.

  • Report this Comment On October 11, 2013, at 2:58 PM, plange01 wrote:

    how long before one of these NIGHTMARE LINERS lands nose first at 500 mph?

  • Report this Comment On October 11, 2013, at 4:37 PM, TMFCatoMinor wrote:

    plange001, I wouldn't go that far. None of the incidents with the Boeing 787 so far have compromised human safety. Air travel remains the safest form of transportation and the manufacturers' and airliners' commitment to safety has been part of the reason there have been delays: flights are cancelled or delayed rather than take even a small risk that safety might be compromised in any way. I'm skeptical of the Dreamliner program as a profitable investment for Boeing (I think a less ambitious program might have been a more prudent course from a financial standpoint), but I wouldn't hesitate to take my family on a 787.

  • Report this Comment On October 11, 2013, at 4:39 PM, TMFCatoMinor wrote:

    sagebrush52, the Norwegian Air people may well have nice things to say about Boeing, that doesn't change the fact that both of their 787s were taken out of service within weeks of each other. Airbus customers aren't having the same problems.

  • Report this Comment On October 12, 2013, at 2:16 AM, speedbag88 wrote:

    The term " analysts like me " about sums it up. We'll see how many issues the 350 has when it finally flys.

  • Report this Comment On October 12, 2013, at 7:42 AM, Colonel8181 wrote:

    I'm a 25 year veteran of the Boeing Co., the general feeling I see here is the result of the insane amount of outsourcing of parts procurement the company has used in the assembly of this aircraft. When I joined the company in the 80's, there was a firm opinion that the "wing" technology would never be compromised. Guess who now builds the wings for the 787?, Japan !.

    I have worked in both metal wing componets and composite epinage fabrication in my career and it makes me very bitter to see this happening. When Boeing machinists fabricated and built aircraft, we had never seen these type of problems with new model aircraft that we now see today.

    It was thought that Boeing learned a valuable lesson from this, but the problem(s) persist and continues to this day as nothing has changed. Hopefully at some point, the leadership of this company will wake up and right the ship.

    My apologies to those whom have suffered as a result -

  • Report this Comment On October 12, 2013, at 3:59 PM, RobertPhoenix wrote:

    sagebrush52 - Imagine you are running an airline and you are having problems with aircraft that you have staked your future on. I think you would do two things.

    1. Complain bitterly to the supplier - perhaps the leasing company in this case because you are not getting what you ordered and are paying for. That might be even better than complaining to Boeing because the leasing company has a lot more leverage with Boeing !

    2. You will go bust if people are reluctant to fly on your planes, so you have to reassure them that they are going to fly on a great aircraft, which is what the CEO is doing now.

    A difficult position to be in !! Norwegian have done both

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