The Boeing Company (NYSE:BA) stock dropped more than 7% on Friday when news broke that a 787 Dreamliner operated by Ethiopian Airlines caught fire Friday while parked on the tarmac at London’s Heathrow Airport. In an unrelated incident, another 787 operated by Thomson Airways headed to Orlando, Fla., had to return to Manchester after unspecified component malfunctions. In both incidents, fortunately no one was injured. The only harm was to stockholders’ portfolios, as The Boeing Company (NYSE:BA) experienced the biggest single-day loss in nearly two years.
The malfunctions, particularly the fire, instantly call to mind The Boeing Company (NYSE:BA)’s previous problems with the Dreamliner. After a severely delayed launch of the technologically advanced passenger jet, a series of glitches and small technical problems culminated last January as two Dreamliners caught fire, causing regulators worldwide to ground the entire fleet of Dreamliners. In those instances, the problem was a lithium-ion battery that could overheat, start to smoke, and eventually combust. The Boeing Company (NYSE:BA) provided a fix that saw the Dreamliner fleet back in operation in May, and Friday’s sell-off might have indicated investors’ doubts that the problem was truly solved.
However, the location of the fire on the latest plane indicates that the lithium-ion battery was not responsible. An investigation by U.K. aviation officials and The Boeing Company (NYSE:BA) engineers is ongoing, but for now the good news is that airline customers don’t appear to believe that these malfunctions are severe enough to ground the fleet. Ethiopian Airlines plans to continue running its other three 787s, and major customers including United Continental Holdings Inc (NYSE:UAL) and All Nippon Airways have confirmed that their own 787 fleets remain in operation, pending the results of the investigation.
So does Friday’s sell-off provide a good entry point into the stock? I don’t think so. Friday’s events illustrate a fundamental truth about the company: There’s no such thing as a good surprise for The Boeing Company (NYSE:BA).
The factory, not the sky, is the limit
The problem with Boeing stock is that despite a massive order backlog of $392 billion, almost 5 times annual sales, the company can’t meet demand fast enough. Orders don’t automatically translate to sales at Boeing, because the company doesn’t get paid until and unless it actually delivers the plane. This reality makes the production line, not the sales team, the real cap on Boeing’s growth. In most industries, meeting demand is a pretty straightforward matter, but Boeing is manufacturing perhaps the single most complex and demanding product in human history. Building more planes fast enough to meet investor expectations simply may not be logistically possible.