Boeing hopes to fly above 787 safety storm

A series of incidents and now an FAA grounding could hurt the company just as it planned to ramp up production of the long-delayed Dreamliner.

By Trefis Jan 16, 2013 6:11PM
Portrait of Pilots Sitting in the Cockpit, Adjusting the Controls copyright Digital Vision., Digital Vision, Getty ImagesUpdated: Concerns over the 787 Dreamliner  threaten to spill over into Boeing's (BA) financial performance.  

The model, which was introduced into service in late 2011 after a delay of three years, has witnessed a host of problems lately, prompting the Federal Aviation Administration Wednesday evening to ground 787 Dreamliners until they can be proven safe to fly.

In the most recent incident, an All Nippon Airways' (ANA) Dreamliner pilot received a battery-fault warning and detected smoke in the cockpit, forcing him to make an emergency landing. Though no passengers were hurt in the incident, ANA grounded its entire fleet of 17 787 Dreamliners. The Japanese airline was the first customer to fly the Dreamliner.

This incident comes barely a week after a battery on board a Japan Airlines' (JAL) Dreamliner caught fire at Boston's Logan Airport, and another JAL Dreamliner was found to have a fuel leak. 

These events prompted the FAA to order a review of the critical systems of the 787, including its design, manufacture and assembly, which has resulted in the temporary grounding of the planes.


The incidences come at a critical time for Boeing as it was in the process of increasing the 787 production rate to cope with a huge backlog. At the end of 2012, Boeing had 799 unfilled orders for the Dreamliner. The company was set to raise the production rate under the 787 program from five per month at present, to 10 per month by the end of 2013. However, if safety issues prevent the planned hike in 787 production rates, it will mean fewer 787 deliveries in the near-term. This, in turn, will impact earnings of the company.

Boeing Stock Break-UpPrecautionary measures by 787 operators

Boeing has delivered around 50 787 Dreamliners to eight airlines -- All Nippon Airways, Japan Airlines, Air India, Ethiopian Airlines, Chile's LAN Airlines, LOT Polish Airlines, United  and Qatar Airways. In response to recent malfunctions, which have included battery trouble, cracked windshield and fuel leakage, several 787 operators have taken precautionary steps. Japan Airlines suspended operations of all seven Dreamliners in its fleet. India's aviation regulator --Director General of Civil Aviation (DGCA) -- said that it will check the six Dreamliners in Air India's fleet.

Boeing's response

Boeing has said that it is working with all the operators of 787s to resolve issues and that it has full confidence in the air-worthiness of the 787 Dreamliner. In a statement on Jan. 11, the company said that it will fully cooperate with the FAA to review the recent issues and critical systems of the Dreamliner.

It is not uncommon for new airplane models to witness issues in their first year or two of service. Boeing's 777 and Airbus' A38 also had problems during their initial days. Boeing echoed this by saying, "Like the 777, at 15 months of service, we are seeing the 787's fleet wide dispatch reliability well above 90%."

However, when followed by an FAA review, such incidents erode customers' (airlines) confidence in Boeing and threaten to pull down 787 delivery rates in the near-term. Further, reduced delivery rates could potentially bring Boeing down from its top position in annual airplane deliveries. A position it was able to occupy after a decade by replacing Airbus.

Trefis currently has a stock price estimate of $75.16 for Boeing, marginally below its current price.

Tags: BA
Jan 17, 2013 2:32PM
787 makes HISTORY of being the first plane EVER to have a cracked windshield...

Note how the media never digs to find out why the fuel leak happened:  was it a crack, did somebody leave the cap off,   or did a grand crew run the food elevator truck into it.

Hype to dip the stock for nothing more than a few bugs.
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