The Boeing Company (BA)’s Dreamliner Looks More and More Like a Nightmare

After placing a big bet on airlines’ demand for fuel-sipping planes, The Boeing Company (NYSE:BA) has had trouble executing on its vision. The 787 Dreamliner was designed to consume 20% less fuel than similarly sized planes, while offering extra range to support longer routes. Yet the company delivered the first Dreamliner three years behind schedule due to difficulties with development and organizing a global supply chain.

However, once the Dreamliner successfully entered service in late 2011, most investors thought The Boeing Company (NYSE:BA) was in the clear. While some airlines complained about the delays, most were just glad to get their hands on this revolutionary plane. After a long period of underperformance, The Boeing Company (NYSE:BA) stock has beaten the market handily since the Dreamliner was introduced in September 2011.

Boeing Stock Chart, 9/26/11-present, data by YCharts

However, quality issues are starting to seriously threaten Boeing’s reputation. There have been multiple unexplained fires on board Dreamliners this year, including one just last week. While regulators have had a measured reaction to the most recent Dreamliner fire, the model’s poor track record is becoming a cause for concern. With top rival Airbus soon releasing its own new fuel-efficient widebody — the A350 — The Boeing Company (NYSE:BA) needs to repair its reputation for reliability right away.

Fire on board
In January, two different Dreamliner aircraft experienced fire-related incidents. On Jan. 7, a Japan Airlines airplane caught fire while sitting empty on the tarmac at Logan Airport in Boston. Then, on Jan. 16, people on board an ANA flight in Japan caught the smell of smoke, forcing an emergency landing. In both cases, the problems were traced to the Dreamliner’s advanced lithium-ion batteries, but the exact cause of the malfunctions could not be determined.

As a result of these safety issues, regulators grounded the 787 worldwide for four months in order to investigate the incidents and ensure that they would not recur. The Boeing Company (NYSE:BA) ultimately had to redesign the battery compartment in a number of ways. However, while having the plane out of commission for months was a big inconvenience, most of Boeing’s 787 customers were not too concerned. For example, United Continental Holdings Inc (NYSE:UAL) CEO Jeff Smisek extolled the 787’s virtues on the day the plane reentered service in May.

Deja vu
On Friday, Boeing and its customers experienced a deja vu moment. An Ethiopian Airlines plane mysteriously caught fire while parked in a remote area at London’s Heathrow Airport. Shortly thereafter, a Dreamliner operated by Thomson Airways and bound for Florida was forced to return to Manchester Airport due to “a technical issue“.

The Thomson Airways incident appeared to be a relatively routine precautionary diversion, and was unsettling primarily because of the coincidence that it came on the same day as the Ethiopian Airlines fire. By contrast, the fire is of more concern for The Boeing Company (NYSE:BA) investors and customers like United.