Boeing Co. is facing heightened scrutiny over its marquee aircraft as mechanical problems and safety investigations mount.
The Federal Aviation Administration grounded flights of 787 Dreamliners late Wednesday to conduct a safety review on the same day after two major Japanese airlines took similar measures following an emergency landing. On Thursday morning, aviation regulators in three regions with airlines that operate the aircraft - Japan, India and Europe - also ordered a halt to flights.
“Before further flight, operators of U.S.-registered, Boeing 787 aircraft must demonstrate to the Federal Aviation Administration that the batteries are safe,” the regulator said in a statement.
Industry watchers believe Boeing is at risk of being in a position that no company wants to be in – waiting and hoping this is the end of a string of mechanical glitches plaguing the 787s.
But a main concern is that the mechanical problems have been in different parts of the planes, which observers say is indicative of complicated electrical issues. Early Wednesday, the crew of an All Nippon Airways flight made an emergency landing in Japan due to trouble with the battery in the front of the airplane. Passengers had to disembark by jumping down the emergency slides onto the runway.
This follows a series of problems last week with both All Nippon and Japan Airlines’ 787s – from a small electrical fire to fuel leaks and a faulty computer message connected to the braking systems – which cancelled flights and kept the individual planes grounded. In December, there were four instances of faulty circuit boards creating electrical glitches.
The U.S. Federal Aviation Administration announced a review last week of 787s, in addition to investigations by the National Transportation Safety Board and Japanese inspectors. Also, regulators in India are investigating the aircraft, although they indicated that there are no plans so far to ground Air India’s 787s.
“Here’s the problem: Boeing is losing control of the situation. We have four regulatory bodies looking at this. Any of these could cause difficulties for Boeing,” said Carter Leake, an aerospace analyst who follows the company for investment firm BB&T Capital Markets in Richmond, Va. “It’s not really clear what Boeing can really do at this point.”
The 787, viewed as the key long-haul aircraft that will carry Boeing’s business over the next two decades, has had a succession of delays and manufacturing problem during its prolonged introduction in recent years. The company now has more than 800 orders for new 787s that it still needs to build and deliver to airlines around the world. Roughly 5,000 787s are expected to be sold over the next 20 years.
But after thorough regulatory testing and certification, why are so many manufacturing problems suddenly happening now? Boeing has been unable to answer that, other than making assertions that all launches of major, new models undergo teething problems.
“But it’s happening across all fronts and in different areas [of the planes],” Mr. Leake said. “Yes, the airplane is safe, but we’ve reached new territory now, both with public sentiment and regulatory scrutiny.”
In addition, airlines could begin looking to the aircraft maker for compensation of lost business. So far, carriers such as Qatar Airlines, one of the first to fly the 787s, have stood behind its order of 30 aircraft. United Airlines and LOT Polish Airlines were also among those continuing to fly their 787s on schedule Wednesday.
But “the lost revenue by the Japanese carriers could prompt compensation from Boeing, which is an important risk to investor sentiment,” Robert Stallard, an analyst at RBC Dominion Securities, said in a report. “What started as a series of relatively minor, isolated incidents now threatens to overhang Boeing until it can return confidence, and this looks to be a near-term challenge given the media’s draw to all things 787,” Mr. Stallard added.
Boeing’s business currently relies heavily on the popularity of its 777s and smaller 737s, which have a higher margin and cash flow. “But that’s not the current Boeing story,” Mr. Leake said.
The story touted by Boeing is that the 787s are central to the company’s long-term growth, with expectations that the company at least break even on the cost of producing the 787s by late 2014 or early 2015. In two years’ time, the 787s were expected to be around 20 per cent of the company’s revenue, assuming production were to continue ramping up, Mr. Leake noted.
Last week, Boeing was more vocal in standing behind the aircraft and pointing to the new FAA review as a means to prove its safety. “[We stand] 100 per cent behind the integrity of the 787 and the rigorous process that led to its successful certification and entry into service,” Boeing’s chief executive officer Jim McNerney said in a press statement after the string of mishaps last week.
He added that the FAA review “will underscore our confidence, and the confidence of our customers and the travelling public, in the reliability, safety and performance of the innovative, new 787 Dreamliner.”
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