Dreamliner costs add up for Boeing

The negative publicity surrounding the new plane will haunt the company for years. Still, Wall Street remains confident the safety issues will be resolved.

By Jonathan Berr Jan 21, 2013 12:49PM
Image: Paper airplane made of money (Tetra Images/Corbis)It won't be cheap for Boeing (BA) to end the public relations nightmare around the 787 Dreamliner.

The Chicago company will probably spend several hundred million dollars to redesign the controversial batteries in the plane that have drawn concerns. Regulators around the world have taken the unusual step of ordering the aircraft grounded.

As The New York Times notes, Boeing also may have to pay up to $1.5 million a day in penalties to carriers who have purchased the plane. United Airlines (UAL) is the only U.S carrier that flies the Dreamliner. 

The timing of these safety issues comes as Boeing had planned to ramp up production of the $207 million jetliner. Of course, the damage to the company's reputation may take years to repair.

Meanwhile, regulators still have to figure out why the plane's lithium-ion batteries have malfunctioned. Investigators from the National Transportation Safety Board examined a battery from a plane that recently caught fire in Boston and found that it did not exceed "its designed voltage of 32 volts." That's bad news, because an overcharged battery was blamed for a fire in Japan.  

If there are two separate Dreamliner battery problems, that could "potentially delay Boeing's effort to persuade regulators to allow the planes back into service," the Wall Street Journal says.

Wall Street, though, still has faith that Boeing will solve the Dreamliner's problems eventually. Shares of the aerospace company have not budged much in the wake of the negative publicity. To date, Boeing has just delivered 50 of the 850 Dreamliners that airlines have ordered. The average 52-week price target on the stock is $88.58, about 18% higher than where it currently trades.

Carriers are keen on the 787 because it is far more fuel efficient than more conventional aircraft, enabling them fly passengers farther, faster and cheaper. If Boeing can resolve the safety issues, the Dreamliner stands to be a big money maker.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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