May 3, 2013 in Business

Boeing unfazed by 787 woes

Chicago-based company’s stock reaches five-year high
Gregory Karp Chicago Tribune
 
Associated Press photo

Boeing Aircraft-on-Ground team technician David Brask explains about the new battery system for the Boeing 787 to the media as he stands in front of its engine inside the maintenance hangar at Haneda International Airport in Tokyo in April.
(Full-size photo)(All photos)

SEATTLE – Last week, on the same day the FAA officially ungrounded Boeing’s 787 Dreamliner, American Airlines employees were whooping it up in an aircraft hangar at nearby Boeing Field.

It had nothing to do with the Dreamliner.

Executives and select employees cheered the official delivery of a different plane, a new 777-300ER aircraft. American is the first U.S. carrier to own the dual-aisle plane. Festivities included the requisite ribbon-cutting, speeches by executives and applause from the 100 or so workers.

In other words, for Chicago-based Boeing Co. – embroiled in a three-month public relations fiasco about batteries that overheated aboard its highly touted 787 Dreamliner – it was business as usual. Another plane out the door.

After 100 days of breathless and near-daily news reports around the world about grounded Boeing 787 Dreamliners, casual observers might conclude that Boeing, an aviation and defense behemoth, was on the ropes financially and that battery-overheating problems with its new airplane were among the gravest in aviation history.

Not exactly.

The number of passengers killed on Dreamliners is zero, as is the number of injuries. The problematic batteries don’t even have anything to do with the plane’s basic ability to fly.

And despite the attention, the grounded plane had little impact on Americans. Chicago-based United Airlines is the only U.S. carrier to have 787s, and it has only six in a fleet of 700 planes.

Maybe most telling about the impact of the Dreamliner battery crisis is its effect on Boeing as a company. “We haven’t talked specifics on the numbers, but it’s minor in comparison to the overall results,” Boeing Chief Financial Officer Greg Smith said last week in talking about the battery problem’s effect on first-quarter earnings, which surpassed Wall Street expectations.

So far, the battery episode doesn’t seem to have damaged profits of the world’s largest aircraft-maker. Indeed, it expects to generate the same companywide profit for 2013 that it announced before the battery crisis, and will this year deliver all the scheduled Dreamliners, 25 of which are completed but parked around Boeing factories because deliveries were halted.

Airlines haven’t soured on the company. Boeing’s new orders are strong. Not a single customer canceled an order for a Dreamliner, which lists for $207 million, as a result of the battery problems.

And investors seem to believe in the company. Boeing’s stock price closed last Friday at a five-year high before dropping slightly this week.

F. Carter Leake, an aerospace analyst with BB&T Capital Markets, issued a report last week titled, “The 787 Crisis: Like it Never Happened at All,” saying Boeing’s stellar quarter had him “eating a large plate of crow” because of his formerly negative view of the company based on the battery problems.

“Not only did Boeing resolve all issues with the FAA in short order, but it did so at rounding error cost,” Leake wrote, citing Boeing’s success with other airplane lines. “We are returning to our pre-787 crisis thesis that posited that Boeing’s current and planned mix of platforms is arguably the best in its history.”

All that’s not to say overheating batteries weren’t a serious problem: Boeing officials are careful not to pooh-pooh it, and for three months the company poured resources into addressing the problem batteries.

“The grounding of the fleet was a very significant event for Boeing and for our customers,” said Mike Sinnett, chief project engineer for the 787. “We take it very, very seriously.”

But experts say the saga will be remembered in the long term only as minor turbulence in launching a highly successful new plane model. “Five years from now, this will all be forgotten,” said Aaron Gellman, an aviation expert at Northwestern University.

Henry Harteveldt, a travel analyst with Hudson Crossing, said he was surprised by the intense interest in the 787’s battery.

“No planes crashed, no one was hurt, no one died,” he said. “I don’t think the 787 will have a long-lasting black mark or stigma over it.”

There’s no denying the Dreamliner has been problem-plagued, starting with delivering the first plane more than three years late because of design and production delays. And then there were the “teething problems,” the fuel leaks and other minor mishaps common in new plane models.

But then in January the lithium-ion battery problems surfaced.

The Federal Aviation Administration grounded Dreamliners in the U.S. after overheating battery incidents on two Japanese planes, one in Boston and one in Japan. The ban was the first since the McDonnell Douglas DC-10 had its airworthiness certificate suspended after a deadly 1979 crash soon after takeoff from Chicago’s O’Hare International Airport.

Aviation regulators around the world followed the FAA in grounding Dreamliners. Boeing halted deliveries of the plane. Investigations ensued, by Boeing, the FAA and the National Transportation Safety Board.

In the end, Boeing failed to find a root cause for the overheating lithium-ion batteries. Instead, the company devised a system that it said should make it impossible for a fire to start.

Boeing developed retrofit kits that are being applied to Dreamliners around the world as aviation regulators approve the fix and lift their bans on the plane. The FAA officially ungrounded the 787 last Friday.

Boeing said it expected to resume deliveries early this month and finish retrofitting the 50 customer planes by mid-May.

The FAA, which technically is only responsible for United Airlines’ six Dreamliners, pegged the cost of repairing the carrier’s half-dozen jets at about $2.8 million. Relatively, that’s not a huge cost. Boeing’s revenues are near $70 billion.

Boeing might have invited scrutiny by boldly calling its new plane a “Dreamliner.” Executives continually refer to it as a “game-changing” airplane.

“Boeing did a really good job of hyping the 787 and it became a very compelling business story,” Harteveldt said.

In the industry and to aviation enthusiasts, the plane was remarkable because its fuselage and wings are made of composite materials instead of metal, prompting some to refer to it as a “plastic plane.”

The lighter composites make the Dreamliner 20 percent more fuel-efficient, a huge deal for airlines, whose biggest expense is jet fuel. Fuel efficiency also lets the jet fly farther, allowing carriers to use it on lengthy international routes instead of using jumbo jets, which they sometimes have trouble filling with passengers.

The composites also allowed the Dreamliner to have unusual passenger comforts, such as larger windows, and the ability to adjust cabin pressure and humidity to more comfortable levels than in metal planes.

“It was held up as a way for business travelers, especially, to get between two destinations in a faster, more efficient, more pleasant way,” Harteveldt said. “Batteries catching fire kind of puts a damper on all of that enthusiasm.”

And the battery story had elements of intrigue, stemming from not only the stumbles of a much-hyped aircraft, but the visuals: images of a badly charred battery and of emergency slides deployed on a 787 in Japan after a battery melting incident.

“Part of it was simply the drama in how the problems unfolded,” Harteveldt said. “It’s the stuff of great TV news stories.”


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