Boeing (NYSE:BA) shares sank as much as 7% Friday when news broke about a fire on a Boeing 787 Dreamliner in the Ethiopian Airlines fleet. Unfortunately for Boeing, a second event over U.K. airspace led to a Boeing 787 making an unscheduled emergency landing the same day. Concern was especially heightened around BA shares because the 787 was grounded not long ago on battery issues. Shareholders are bearing risk that the aircraft might be forced earthbound again by the NTSB and FAA. As problems seem to mount for the airplane, the flow and sustainability of orders could be impacted and so Boeing's earnings could be harmed. Certainly, the shares, which have recently enjoyed a nice run higher, would seem to face extraordinary risk near-term.
The Ethiopian Airlines plane that experienced the fire at London's Heathrow Airport had reportedly been sitting for approximately 8 hours (according to CNBC) and was empty when the incident occurred. A fire toward the rear of the plane was clearly evident due to burn marks on the roof of the plane. CNBC indicated that the NTSB has already dispatched a representative to London Heathrow to investigate the fire.
In January, Boeing's entire active fleet of the 787 Dreamliner was grounded for problems with the aircraft's lithium-ion batteries. One actually caught fire at Boston's Logan Airport after similarly sitting for hours. However, Boeing designed and implemented a modification that was approved by regulators, and the aircraft was approved for flight in May. Interestingly enough, Ethiopian Airlines was one of the first to begin flying the Dreamliner again.
Boeing shares began to anticipate the aircraft's return and the stock has enjoyed a nice run since March. However, today, BA shares are down sharply, though doing better than the initial selloff, as investors speculate about other possible causes of the fire. While some television reporters have pointed out that the fire was on the top of the plane, they ignore the fact that it was in the rear and that fire itself is unpredictable and will definitely scorch what is above it. I find it important that this latest fire was also at the rear of the plane, like the other 787 fires.
General Electric (NYSE:GE) made a public statement indicating the fire was not engine related. GE engaged the public on the subject because shares of other Boeing suppliers were harmed by the day's news, with Precision Castparts (NYSE:PCP), Spirit AeroSystems (NYSE: SPR) and Hexcel (NYSE:HXL) all sharply lower.
I think that most of us will agree that the least amount of combustible material is the best amount for airplane design. Lithium-ion batteries are historically notorious for catching fire. You will recall when laptop computers use to catch fire, that it was due to their use of lithium-ion batteries. I'm concerned that the NTSB and the FAA could lose patience with Boeing if this issue is again battery related. If it is, another immediate grounding is highly likely in my view, because it will have proven the modification inadequate.
Thus, despite any valuation consideration, I would sell Boeing as soon as possible and avoid risk of the shares deflating further on a grounding. The market is very likely to express concern about aircraft order maintenance and new order growth if this issue is at all related to the battery. There is no reason to bear risk until that information is known, and the intraday recovery of the stock allows holders to sell out of that risk here at a better price than earlier.