Boeing’s Bad News Bears Focus Attention on These Scapegoats
It has been a long few weeks for Boeing (NYSE:BA). The stock price has been a roller coaster ride for investors, with shares bouncing fairly rapidly between a short-term floor of about $74 and a short-term ceiling of about $77. The catalysts have been a series of electrical issues with the company’s flagship 787 Dreamliner aircraft that led to fleets around the world being grounded for investigation.
The bad news bears have been out in force. Boeing was slapped with a quick downgrade from one analyst and plenty of pressure from shareholders and aviation officials. At the same time, it’s trying to double 787 production and settle a contract negotiation dispute with a union representing 23,000 workers.
Shares closed last week down just 0.29 percent, at $75.06, after climbing as high as $76.95 on Tuesday. On Wednesday, the Federal Aviation Administration issued an emergency airworthiness directive to “address a potential battery fire risk in the 787 and require operators to temporarily cease operations.” The directive will keep the 787 on the ground until it can be demonstrated that the batteries are safe.
“The battery failures resulted in release of flammable electrolytes, heat damage, and smoke on two Model 787 airplanes. The root cause of these failures is currently under investigation. These conditions, if not corrected, could result in damage to critical systems and structures, and the potential for fire in the electrical compartment,” the FAA said in a statement.
And Boeing isn’t the only company involved in the investigation. Aircraft are the sum of thousands of components made by hundreds of suppliers, and at least three other companies are closely involved in the battery issue.
The battery itself is made by a Japanese company named Yuasa Corp. As part of what has become a global investigation into the issue, the Japanese transport ministry is searching the company’s headquarters in Kyoto to see if they can identify any problems with the manufacturing process.
“We’ll first look at the battery, but we have to check if battery is the only problem or there’s an entire electrical system issue,” said spokesman Hiroharu Nakano, . “We need to fully investigate the system.”
Officials were also headed to the U.K. to investigate an unnamed company, and are looking into the Thales Group, a French company that supplied the system. United Technologies (NYSE:UTX), a major tech products company based in Connecticut, is the main supplied of electrical systems to the plane.
So far, United Air Lines (NYSE:UAL) is the only major U.S. airline to take deliveries of the plane. It’s unclear what the impact of the ordeal will be yet, either to Boeing or the affected airlines. Consumer confidence in the plane quickly wavered after the news spread and the PR nightmare grew. For their part, the airlines continue to stand behind the aircraft, and seem forgiving of the technical issues.