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Why Shares of Boeing Are Down Today

By Lou Whiteman - Sep 8, 2020 at 10:19AM

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The FAA is looking into Dreamliner manufacturing issues.

What happened

Shares of Boeing (BA 0.89%) lost 5% on Tuesday morning after the U.S. Federal Aviation Administration (FAA) said it was looking into manufacturing flaws in some 787 Dreamliners. The investigation is preliminary, and Boeing believes the issues are limited to a small number of airplanes, but the company can ill afford a fresh round of headlines questioning its manufacturing prowess right now.

So what

In late August, Boeing identified two distinct manufacturing issues in recently built Dreamliners that led to a small number of planes being grounded. The issues could make the planes unable to withstand the maximum stress that an aircraft can experience in flight.

A Boeing 787 Dreamliner in flight

Image source: Boeing.

The FAA over the weekend said it was opening an investigation into the flaws, though it said it is too soon to determine whether new inspections will be required. Boeing said its internal investigation has determined that, while there are some planes that might have one of the two issues, it believes none have both in a way that could cause concerns about structural integrity.

Still, the news comes at a difficult time for Boeing. The company's 737 MAX has been grounded since March 2019 after a pair of fatal accidents, and Boeing's response to the 737 MAX problems has led to questions about the safety culture at the company.

Boeing is also trying to manage through a sharp decline in demand for new planes due to airlines cutting back as a result of the COVID-19 pandemic.

Now what

Based on what we know right now, this appears to be an isolated issue and not something that will impact all of the 900 Dreamliners delivered. If so, it should be a pretty manageable financial issue for the company.

The real risk is reputational. Boeing is a company on the defensive after the 737 MAX debacle and can ill afford travelers reading that another of its signature aircraft models is under added scrutiny. While Boeing, thanks to its global duopoly with Airbus, should win its share of new plane orders in recent years, questions about safety could make it harder for Boeing to establish itself as the preferred choice for flyers and airline buyers.

Boeing shares already faced a multiyear headwind as the company rides out the COVID-19 airline slump and rebuilds its reputation. The new Dreamliner issues just makes the challenge ahead that much harder.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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