Market Overview

The Dreamliner is Grounded but is Boeing's Stock?

Problems continue for Boeing (NYSE: BA) following news that the Federal Aviation Administration grounded the company's newest and most technologically advanced jetliner Wednesday, pending resolution of a problem with battery fires.

All airlines that fly in U.S. air space are subject to the order but aviation authorities around the world generally follow the recommendations of the FAA.

The FAA action came on the same day that Japan's two biggest airlines--which fly almost half of the world's 50 787s--voluntarily grounded them pending full safety checks.

The decision also canceled plans by LOT Polish Airlines to make a return trip from Chicago's O'Hare Airport to Warsaw Wednesday. LOT plans to use the Dreamliner, one of ten ordered so far, for roundtrip service between the two cities.

LOT spokesman Mark Kłuciński told Polkskie Radio “We respect this decision” of the US aviation authority to ground the planes, adding, however, that the flight to Chicago from Warsaw “ran smoothly.”

Bloomberg reported today that Qantas Airways Ltd. (QAN) canceled one of the 15 orders it has for Boeing Co.'s 787 aircraft. The unnamed source, however, told Bloomberg that Qantas's decision to scrap the order for its Jetstar unit isn't connected to the grounding and had been planned since late last year.

The 787 is the first plane to make extensive use of lithium-ion batteries, which have been the focus of past concerns by the FAA due to their potential to catch fire.

Boeing and the other airlines will need to move quickly to determine whether the problem is a flaw in the batteries themselves, in the plane's wiring or in some other area that's fundamental to the plane's electrical system.

Neither GS Yuasa Corp. (OTC: GYUAF) the Japanese company that supplies the batteries for the 787, nor Thales Group, which makes the battery charging system, has made a public statement on the recent troubles but CNBC reported that GS Yuasa officials indicated that it could take months to find the problem with the batteries.

One thing that will help investigators, according to CNBC, is the fact the Dreamliner is perhaps the most wired plane ever built, feeding back data to Boeing and the airlines flying the planes. That data could help investigators pin point what exactly went wrong and if the Dreamliner handled the malfunction as designed.

Boeing continues building the Dreamliner in its Everett, Washington and Charleston, South Carolina production facilities. The current pace calls for five Dreamliners per month. By the end of the year, Boeing plans to raise the number to ten.

Downgrades are pouring in. Goldman Sachs removed Boeing from its conviction buy list and BB&T Capital downgraded it from “Hold” to “Underweight” after downgrading from “Buy” to “Hold” just nine days prior. In afternoon trading, Boeing was up 1 percent after starting the trading day down more than 2 percent.

The stock rose after reports that the Dreamliner's electrical problems are confined to the battery.

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