When is a plane not a plane? When it never gets off the ground, and instead becomes a piece of runway art. Boeing (NYSE:BA) critics have named its new Dreamliner the "7-late-7" with good reason. The company's announcement of yet another delay in the new model's maiden voyage is becoming a public relations nightmare.
Considering the anticipation that has built up behind the jumbo airship, it's no wonder the string of postponements has frustrated investors, who have suffered a 60% loss of value in Boeing shares since the Dreamliner's first snafu was announced two years ago.
There does seem to be a bit of a credibility gap in the executive suite, since Boeing's Commercial Airlines CEO was cheerleading this effort as recently as last week. After all, they knew as early as last month there was an issue, but averred that it only became apparent last week that they'd have to push the launch back.
If it were only Boeing affected, the angst that the delays have caused would be warranted. But the Dreamliner's entire supply chain is bearing the burden of the 787's failure to gain altitude.
Even as suppliers Triumph Group, Precision Castparts (NYSE:PCP), and Spirit AeroSystems (NYSE:SPR) see their shares suffer right along with Boeing, investors should take heart. There's opportunity in this.
The convergence of aluminum, titanium, and composites where the plane's wing meets the body didn't register as an issue in computer simulations, but no sane plane manufacturer relies upon computer models alone to certify safety. Putting the plane through static testing identified a need for additional supports along the joint. That could be why composite maker Hexcel fell more than even Boeing did, dropping 9% against the plane maker's 6% decline the day after the news.
Take a look at how suppliers have fared in the days after of Boeing's announcement:
|
Company |
Price |
% Change |
|---|---|---|
|
Boeing |
$41.32 |
(11.9%) |
|
Barnes Group |
$11.52 |
(2.4%) |
|
Goodrich (NYSE:GR) |
$49.44 |
0.0% |
|
Hexcel (NYSE:HXL) |
$9.43 |
(4.4%) |
|
Precision Castparts |
$73.15 |
(5.3%) |
|
Rockwell Collins (NYSE:COL) |
$41.60 |
(2.0%) |
|
Spirit AeroSystems |
$13.52 |
(9.9%) |
|
TransDigm (NYSE:TDG) |
$36.38 |
1.6% |
|
Triumph Group |
$41.18 |
(5.9%) |
Source: Yahoo! Finance. Prices reflect June 24 closing price.
Yet there are six reasons why investors should consider being aggressive here -- if not for Boeing's stock (because it might still incur financial penalties from customers), then at least for its suppliers:
- Boeing's management did not take the easy route, substituting a launch schedule for airworthiness.
- Production of the Dreamliner is not being suspended or even interrupted.
- The preflight plane can be fixed in the field without disrupting those that are on the assembly line.
- Fuji (maker of the side body) and Mitsubishi (the wing maker) will be installing the structural support, which will not impact production on the line.
- The cost and additional weight of the repair will be negligible.
- With a unique, worldwide manufacturing supply chain in place, Boeing can work on this issue literally 24/7.
Although management was sketchy on how long the delay will push back the launch, this could work to Boeing's benefit. Customers have been cancelling the purchase of the planes because of the economy, and this delay could arguably relieve some of the pressure of their having to make a decision between keeping orders during uncertain conditions, and canceling them. This is not to say that Boeing won't incur costs and potential cancellations from this structural flaw, but unique factors in the timing of the announcement could actually lessen its impact.
In the end, we only have an admittedly annoying (and perhaps costly, for Boeing) delay in the schedule, but nothing that is fatal to the plane ultimately getting aloft. For that reason, investors ought to be celebrating the market's myopia at giving them a chance to take a flier on Boeing's suppliers' stocks.
