Airfield of Dreams?

Is the Dreamliner a lemon?

Boeing’s 787 Dreamliner has been fraught with problems from the beginning. From design questions to supplier issues to production delays to faulty fuel pumps, the carbon-fiber twin-engine long-range superjet has been left stranded at the gate a few times too many.

It was initially heralded as a game-changer, a jetliner so spacious and so efficient that it could dominate the market for years. But a spate of electrical and mechanical problems over the past several months have prompted the FAA to initiate a top-to-bottom review of the 787’s entire design and manufacturing process.

Now airlines are positioning empty aircraft as “spares” to be sure that high-profile flights take off on time. United recently had two 787s on standby for its first trans-Pacific flight from LA to Tokyo. American recently downgraded its latest order—getting a smaller version of the plane and saving money in the process.

The Dreamliner has been a nightmare for Boeing, for all its panache. For the past five years the company’s stock has gone sideways, while rivals EAD and Northrop Grumman have grown quite well. Boeing executives have to be asking themselves whether this is how Ford’s management felt when the Edsel came out.

But when life hands you lemons, you make lemonade. The Dreamliner is Boeing’s fastest-selling model ever, with almost 850 orders for the $200+ million airliner through 2012. Clearly there’s demand for an efficient, long-range, wide-body jet that can link non-hub cities. The question, with the myriad minor problems, is whether the 787 can meet this need.

Douglas R. Tengdin, CFA

Chief Investment Officer

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