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!