FAA's 787 Dreamliner Probe A Formality To Protect U.S. Jobs And Reassure The Public: Citi

The view from inside a 787 Dreamliner's cockpit - Image credit: AFP/Getty Images via @daylife

With Boeing in the hot seat after several technical and mechanical glitches in its marquee 787 Dreamliner, the Federal Aviation Administration (FAA) announced on Friday it would conduct a ?comprehensive review? of the new aircraft.? While the stock fell on the news, the probe is nothing more than a formality, according to Citi?s equity research team, aimed at assure the public and safeguard ?U.S. jobs, exports, and the nation?s industrial base.?

The FAA?s review, which will take into account the design, manufacturing, and assembly of the aircraft, is political in nature, then, and should have no long-term effect on the performance of the aircraft and the company, Citi?s Jason Gursky explained. ?The probe will focus on the Dreamliners? electrical power and distribution system.

?Both Secretary of Transport LaHood and FAA Administrator Huerta reemphasized their confidence in the 787?s safety and that this review is simply a formalization of typical on-going work conducted with new aircraft,? Gursky added.

The 787 Dreamliner continues to make headlines, though, putting pressure on Boeing?s stock.? After a battery fire and several other mishaps over the past few days, two separate flights reported a cracked cockpit window and an oil leak on Friday.? Several of these problems are typical of newly introduced aircraft, according to several analysts, and have garnered more media attention than they deserve, as I reported previously.

Boeing has delivered 49 Dreamliners since the end of 2011 when the aircraft came into service, at an approximate price of $207 million, according to Reuters.? And Boeing will only increase production going forward, all the way to 2015, UBS? research team suggests. ?In the fourth quarter, the aircraft maker delivered 23 787s, while managing to produce 12.

While the review is unlikely to uncover ?something critical enough that materially harms the outlook for the plane,? shares in Boeing are expected to remain range-bound while it is ongoing, Citi?s Gursky said.? The stock fell hard earlier this week before recovering over the past two trading sessions, but was down another 2.7% to $75.00 on Friday.? Over the long-run, Gursky believes the stock is a ?buy,? as production rate ramps will drive earnings and cash flow that ?support shareholder-friendly cash deployment.?

Shares in Boeing had a decent run over the past few quarters, rallying nearly 8% over the last six months.? Airline stocks have been mixed, with Jet Blue and United Continental barely squeezing out some gains in that time, while Delta and Southwest have returned more than 15%.

The FAA?s probe may be a mere formality, but it will affect both investor confidence in the company and the public?s trust in the planes. ?If Gursky is right, though, the FAA has little incentive to find something truly wrong with the aircraft and seems to be set to work with Boeing to figure everything out before it can affect ?U.S. jobs, exports, and the nation?s industrial base.?

Source: http://www.forbes.com/sites/afontevecchia/2013/01/11/faas-787-dreamliner-probe-a-formality-to-protect-u-s-jobs-and-reassure-the-public-citi/

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