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

First, while the fire appears to be unrelated to the previous battery issue, it points to the risks of using an aircraft that relies on so many new technologies. Second, the fire caused a considerable amount of damage to the plane. If similar incidents continue to occur, airlines could easily be scared off both by the potential cost of having an aircraft out of service and the cost of repairs.

Third, the occurrence of so many separate incidents casts doubt on the thoroughness of Boeing’s quality control process. This could cause more cautious fliers to avoid booking flights on Dreamliners, which would obviously hurt operators like United.

What now?
I still think that The Boeing Company (NYSE:BA) will recover from its Dreamliner woes and make this aircraft one of the staples of future international travel. The Dreamliner’s more comfortable cabin and superior fuel efficiency are two major advances compared to previous generation aircraft. Moreover, Boeing’s strong order backlog mitigates the risk of demand drying up.

However, last week’s fire incident was definitely troubling. With Boeing stock trading for around 15 times forward earnings, much of the upside from the Dreamliner is already reflected in the stock price. While Boeing will probably overcome this latest setback, investors should still be cautious about this stock in light of the potential risks.

The article Boeing’s Dreamliner Looks More and More Like a Nightmare originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is short shares of United Continental Holdings (NYSE:UAL) and long September 2013 $33 puts on United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned.

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