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New Problems for Boeing's Dreamliner

- By Stepan Lavrouk

Boeing Co. (BA) just can't seem to stay out of the news. Just when it looked like the aircraft manufacturer might get some much-needed reprieve from the intense scrutiny that its 737 Max model has been under since the Ethiopian Airlines crash back in March, a report by The New York Times has thrust the company back into the spotlight.

Serious safety issues at Boeing

The report features interviews with former and current Boeing employees that detail serious manufacturing mishaps at the company's 787 Dreamliner plant in South Carolina. The Dreamliner, first flown in 2009, is Boeing's flagship aircraft and, as such, represents an important source of revenue for the company. The report describes safety issues such as metal shavings being left dangerously close to electrical wiring and a general culture of prioritizing speed of manufacturing over following rigorous safety protocols. In particular, the report said:

"Safety lapses at the North Charleston plant have drawn the scrutiny of airlines and regulators. Qatar Airways stopped accepting planes from the factory after manufacturing mishaps damaged jets and delayed deliveries. Workers have filed nearly a dozen whistleblower claims and safety complaints with federal regulators, describing issues like defective manufacturing, debris left on planes and pressure to not report violations. Others have sued Boeing, saying they were retaliated against for flagging manufacturing mistakes.

Joseph Clayton, a technician at the North Charleston plant, one of two facilities where the Dreamliner is built, said he routinely found debris dangerously close to wiring beneath cockpits. 'I've told my wife that I never plan to fly on it,' he said. 'It's just a safety issue.'"

A cultural problem

It is important to note that no Dreamliners have ever crashed and, as such, The Times report is a relatively minor problem for the company compared to the fallout from the 737 Max crashes. But at the same time, it puts more pressure on Boeing's management to explain some its business practices.

Boeing has naturally pushed back against the report, saying the South Carolina plant produces "the highest levels of quality in our history." This is not the first time that concerns have been raised over the safety of Boeing's manufacturing process, however - in March, the Air Force suspended its contract with Boeing for the delivery of the KC-46 tanker (built in Washington), citing similar issues.

Most worryingly, the report alleges there is a concerted effort inside Boeing to suppress whistleblowers and to dismiss attempts to conduct more thorough quality control checks at the expense of speed. The company faces immense competitive pressure from its European rival, Airbus (AIR.PA), which incentivises the company to prioritize speed of delivery. As we discussed previously , 737 Max pilots have reported they received minimal training when switching over from older models and, in many cases, were not even aware of the existence of the manuevering characteristics augmentation system's anti-stall function that ultimately doomed both the Ethiopian Airlines and Lion Air flights.

If even half of The Times report is true, it would behoove investors to remember the words of Warren Buffett (Trades, Portfolio): "There's never just one cockroach in the kitchen."

Disclosure: The author owns no stocks mentioned.

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This article first appeared on GuruFocus.