787 Turbulence

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There has been a lot of media and investor focus on the recent issues with the new Boeing Company (NYSE: BA) 787 Dreamliner passenger aircraft. Probably too much in fact.

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A fire caused by the lithium ion battery used in the auxiliary power system, a fuel leak, and electrical power panel failures were some of the problems observed over the past few months. Two airlines in Japan grounded their fleet in order to inspect the aircraft for any potential safety issues. The FAA issued an order to ground the entire U.S. based fleet, consisting of just six aircraft, until the battery problem is investigated and resolved.

In spite of all the hype none of the problems have really alarmed industry safety experts, regulators and airline operators. All new aircraft, especially one as innovative and complex as the Dreamliner, with its composite materials and mostly electric systems, experience growing pains in the early going. Statements from Boeing indicated that the 787 is actually performing better than the last completely new aircraft it rolled out, the 777, at this stage in the product life cycle. 

However, it hasn't stopped the seemingly endless series of articles written and news reports broadcast on the subject. I counted nearly 4 million stories based upon a web search I performed earlier today. Boeing shares have gone on a roller coaster ride since the battery fire at Logan International Airport in Boston and have declined by 2.2%. 

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Over the long term the current issues probably will not affect Boeing. No airlines have canceled orders or indicated that they will not buy from Boeing in the future. Orders for more than 800 aircraft are in the pipeline. And while the Dreamliner is a high profile program it is not the only game in town. The company has several other aircraft in production, including the best selling 737 model, which last year accounted for the majority of the commercial aircraft delivered by the Chicago-based aerospace giant.

Boeing has a large presence in the defense industry. The ongoing battle between the Administration and Congress over the debt ceiling and a possible budget sequestration for military procurement is more of a risk to the company than the 787 problems. 

The U.S. based airline with Dreamliners in service, United Airlines, a unit of United Continental Holdings (NYSE: UAL), has not been affected to the same extent as Boeing. It will have to use other types of aircraft to replace the 787's in its fleet until the problems are sorted out. Shares are actually up about 1% since the battery fire, which took place on a Dreamliner operated by Japan Airlines. 

Speaking of Chicago, United has been in the news there recently as it is currently embroiled in a spat between Cook County and a small town well south of the city over taxes on the company's subsidiary that provides refueling services for the airline operations at O'Hare International Airport. 

Another company with a vested interest in the 787 program is United Technologies (NYSE: UTX), which is a major subcontractor to Boeing and supplies many of the aircraft components, including those that generate and distribute electric power and control cabin pressure and temperature. So far the deployment problems have not impacted the company. Shares are up about 1.3% since the battery fire incident.

United Technologies is also a major defense contractor and would probably be more affected by a budget sequestration than a Dreamliner issue. 

An interesting side note to this story is that the three companies I discussed above were once part of the same conglomerate, called United Aircraft and Transport Corporation. Formed in 1929, United Aircraft was forced to break up into three pieces five years later by the U.S. government because of anti-competition concerns. It appears that the 787 brought them back together in a manner of speaking. 

My bet is that in a few weeks Boeing and its customers and regulators will have thoroughly investigated the Dreamliner problems and will conclude that there are no major safety risks to the flying public. The media and the blogosphere will have to find something else to write about. I'm sure that they will come up with something. 



Mathman6577 owns shares of and is an engineer employed by United Technologies. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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