Boeing to keep building 787s as battery fix sought

  • Herald news services and staff reports
  • Thursday, January 17, 2013 5:01pm
  • Business

The Boeing Co. plans to keep building its flagship jetliner while engineers try to solve battery problems that have grounded most of the 787 fleet.

It’s not known how long an earlier-announced investigation — or a fix — will take. It’s not even clear what precisely the problem is. But it won’t be cheap for Boeing or for the airlines that had sought the prestige of flying the world’s most sophisticated passenger plane — a marvel of aviation technology that right now can’t leave the tarmac, let alone cross continents and oceans.

The U.S. Federal Aviation Administration ordered Wednesday that 787s in the U.S. be grounded until their lithium-ion batteries are shown to be safe. Before the FAA order, two Japanese airlines, including 787 launch customer All Nippon Airways, had voluntarily parked half the world’s Dreamliners following a battery fire last week and a battery-related emergency landing this week.

Airlines and regulators around the world followed the lead of the FAA and the Japanese carriers and grounded their planes, too.

New 787s sell for more than $200 million at list prices. For that kind of money, airline customers get warranties and in some cases a promise from Boeing to cover costs if the plane is grounded.

Those agreements vary from customer to customer, so it wasn’t known how much the grounding would cost Boeing. Analysts pointed out that there are few airplanes in the size range of the 787 that are available for lease to replace 787s temporarily.

Boeing currently builds five 787s per month. It hasn’t delivered any since Jan. 3. Boeing spokeswoman Lori Gunter said no deliveries had been scheduled during this time but declined to discuss planned deliveries.

Regardless of delivery schedules, it’s cheaper for Boeing to build the planes and then go back and fix them, when a solution to the battery problem is devised, than it is to shut down production.

Boeing’s plight stems from choices it made years ago to push the boundaries of aircraft design in a bid to boost fuel economy. The 787 uses unprecedented amounts of electricity, five times as much as in conventional jets, because less power is diverted from the engines to run on-board systems. Boeing depends in part on lithium-ion batteries, which provide quick, powerful charges and can also overheat and catch fire.

“These aren’t minor issues — it isn’t a matter of a coffee maker going on the fritz or the in-flight entertainment system not working as expected,” said Henry Harteveldt, an aviation analyst at Hudson Crossing in San Francisco. “It could be expensive and lengthy to fix the problem.”

Jefferies analyst Howard Rubel estimated that re-working the jet to fix electrical problems could cost anywhere from $250 million to $625 million. He emphasized Thursday, in a note to investors, that little is known about what it will take to fix the problem. He also noted that some of Boeing’s suppliers may bear some of that cost.

Fitch Ratings said the grounding will hurt Boeing’s profits and cash flow, “but the company has the financial strength to withstand negative developments in the program.”

Barclays analyst Carter Copeland predicted “relatively limited” impact on Boeing’s finances or production. That might change if the groundings last for weeks or months, “but this isn’t yet what we expect,” he wrote Thursday in a note.

Payments to airlines for lost revenue are possible but not likely to be big enough to hurt the company, he added.

The grounding will force airlines to swap in a different plane — often, a Boeing 767 or 777. Even though all of those planes are built to carry a large number of passengers on long-haul flights, their seating layouts are different, and last-minute plane switches are a headache for airlines and passengers. As long as they don’t have to cancel a flight, though, airlines will still collect their money from the ticket.

For most airlines, the 787 is a minor part of their fleet. United has six of them, versus 151 other large planes that it uses for international flights. All Nippon Airways’ 17 787s are a bigger portion of its fleet of about 120 big planes.

Even if Boeing doesn’t have to pay airlines cash because of the problems, it may have to offer services to mollify airlines, such as discounted or free pilot training or discounted spare parts, said Carter Leake, an analyst at BB&T who downgraded Boeing quickly after the plane began having trouble.

Those services are worth something to the airline but don’t show up as a cash expense for Boeing.

Despite the setbacks, he predicted that future orders would not be hurt. The 787 is the best plane in the 200- to 225-passenger range, he said.

Boeing has said the 787 is 20 percent more fuel-efficient than planes of similar size. The competing Airbus A350 isn’t scheduled to make a first test flight until later this year.

“The airlines don’t have a choice. That’s the truth,” Leake said. “The airplane is unique.”

Boeing Co. shares rose 92 cents Thursday to close at $75.26. Before the first battery problem arose, they closed Jan. 4 at $77.69.

Before the grounding, the Dreamliner already was the focus of a special FAA review triggered by last week’s fire on a Japan Airlines jet parked at a Boston airport gate. FAA officials certified the plane before it entered service in late 2011 and said last week that while they considered the plane to be safe, they wanted the evaluation to remove any doubts.

Fresh questions surfaced Wednesday after a battery-fault warning on an All Nippon Airways Dreamliner in Japan forced an emergency landing, and at day’s end in Washington, the FAA issued an airworthiness directive grounding the model.

United Continental Holdings, whose six Dreamliners make it the lone U.S. operator so far, pledged immediate compliance with the FAA. But the government didn’t say what corrective steps are needed or how long they may take.

Japan’s Transport Ministry said it also would order a grounding, while Indian aviation regulators said Air India will park its fleet of six 787s. There are 50 Dreamliners in service worldwide, according to the FAA, whose grounding directive was the first for an entire model in almost 34 years, after a DC-10 crash in Chicago killed 271 people.

The moves are a blow as Boeing works to increase deliveries, trying to shed the weight of more than three years of Dreamliner delays. Boeing is set to double 787 output this year, to 10 planes a month, to help fill remaining orders for about 800.

The Associated Press and Bloomberg News contributed to this report.

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