One of the first casualties of the year in stock watching is one of the biggest blue chips out there; with news this week that 787 airplanes manufactured by Boeing Corporation (NYSE: BA) were grounded at home and abroad by safety concerns.
While seasoned travelers told members of the media they were not spooked by the prospect of flying on the 787s known as Dreamliners, the incidents did throw a bit of a scare into the markets. On Friday afternoon, the shares traded at about $74.70 U.S., down just 4.5% from their recent high earlier in the month, and up nearly 12% from their recent low in June.
The planes were grounded worldwide on Thursday after a battery fire on one, and an emergency landing on another after pilots smelled something burning. Still, frequent flyers did express confidence that the company, in business since the early days of flight, would notice the flaw and correct it.
Still, some airline industry observers are not entirely convinced that the defects are so quickly fixable. Fuel leaks, cracked windshields and overheating batteries are among the problems garnering worldwide attention. Photos of charred battery boxes from the planes have been popping up all over the Internet.
Safety officials around the world took a second look at the planes, and the U.S. Federal Aviation Administration grounded 787s in that country. United Airlines is the only U.S. carrier to fly them, but several foreign airlines use them on flights to and from the U.S. The first Dreamliners took off in the fall of 2011.
Reporters also quoted one former U.S. transportation department spokesperson as saying if Boeing and the FAA believe there is something wrong with a few batteries, replacing them with other lithium-ion batteries would amount to a quick repair. But, she added, the FAA might make Boeing use an entirely different type of battery, entailing redesign work and a new round of regulatory approvals that might take months.
It’s an old adage when it comes to investment, but traders hate uncertainty, and with the economy teetering, and needing consistently favourable to cure those doubts, the troubles with Boeing are as welcome as a punch in the stomach.
Still, for those with a longer-term view, analysts are also sticking by Boeing. According to a recent piece in the Globe and Mail, Goldman Sachs cut its target price on the stock to $90 from $98 U.S. – but the new target price still implies a gain of 20% over the next 12 months.
The fortunes (and misfortunes) of Boeing and its planes merit close scrutiny. Being a Dow stock, there’s nowhere for it to hide.
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