In a sudden twist of fate aviation regulators round the globe
have grounded the entire 50-strong global fleet of
The Boeing Company
) 787 Dreamliner jet airliners. The global grounding comes in the
wake of concerns over the safety of battery systems of the
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The Boeing 787 Dreamliner is a long-range, mid-size, wide-body,
twin-engine jet airliner. In addition to bringing big-jet ranges
to mid-size airplanes, the 787 provides airlines with superior
fuel efficiency, resulting in exceptional environmental
performance. The airplane as per Boeing uses 20% less fuel than
similarly sized airplanes.
The pile of dominos started tumbling from Japan when on Wednesday
a 787 Dreamliner of Japanese airline
All Nippon Airways
) made an emergency landing at Takamatsu airport in Japan. The
Dreamliner was forced to land after an in-flight battery incident
of smoke appearing in the plane's cockpit. The airline attributed
the emission of smoke to a battery malfunction. This prompted the
airliner to ground its fleet of 17 Dreamliners for inspection.
Separately another Japanese airline Japan Airlines also announced
the suspension of the flights of its 7 Dreamliner's until further
notice citing safety concerns after the battery system of a
parked 787 caught fire at Boston's Logan International Airport.
The Japanese omen precipitated a global grounding of Dreamliners
starting at home with a directive from the U.S. Federal Aviation
Administration (FAA). However FAA's directive towards U.S.
carriers affected only
United Continental Holdings, Inc.
). As of now United Continental is the only U.S. airliner with
half a dozen Dreamliners in its fleet. Following FAA's directive
aviation regulators in India and Japan followed suit. The Indian
flag carrier Air India grounded its fleet of 6 Dreamliners. The
trend continued elsewhere with Qatar Airways grounding 5, Chile's
LAN Airlines S.A.
) 3, Ethiopian Airlines 4, and LOT Polish Airlines 2.
The Dreamliner incubus did not end here, in what may well could
be the inception, Qantas Airways Ltd. trimmed its Dreamliner
order tally of 15 by 1. Boeing at 2012 end had a bulging
Dreamliner order book of 848. We are apprehensive that the
battery imbroglio would likely add to the tally of Dreamliner
cancellations. Earlier for clearing the bulging order backlog
Boeing rapidly increased its Dreamliner monthly production rate
from 2.5 to 5 in 2012, with plans on the anvil to stretch it to
10 by late 2013.
Boeing's first delivery of the Dreamliner aircraft was more than
three years behind the original schedule. The company completed
the contractual delivery of the first 787 Dreamliner series
aircraft to All Nippon Airways, in September 2011. The delays
have forced Boeing to pay huge compensation to customers which
added to the project's cost.
The question now arises with Dreamliner dreams turning sour,
would Boeing be able to cope with its ambitious growth plan.
Rising possibility of further U.S. defense cutbacks could impact
the stream of orders and eventually slow down the growth of its
defense business. As a result Boeing had pinned its hope on its
commercial airplanes business for future growth.
The company in its 2012 Current Market Outlook estimates a $4.5
trillion market for 34,000 new commercial airplanes over the next
20 years. Boeing's projection of growth was based on the strength
of the commercial aviation market, recovery witnessed in world
economies and strong demand for fleet addition and replacement.
Of this the twin-aisle airplane segment was the highest valued
segment of the long-term forecast, valued at $2.1 trillion over
the next 20 years. Boeing foresees that over the next 20 years,
the vast majority of twin-aisle airplanes currently flying will
be retired. By 2031, new airplanes will account for 87% of the
twin-aisle fleet. Boeing had relied on the 787 Dreamliner, in
this prized segment, to take on arch rival Airbus's A350 series
Boeing along with experts from U.S. National Transportation
Safety Board, Federal Aviation Administration and Japan Transport
Safety Board has already started investigating the questionable
Dreamliners batteries in Japan. The final outcome of the
Dreamliner imbroglio will not affect Boeing alone but its
long-list of suppliers also. Dreamliner suppliers include among
Rockwell Collins Inc.
Precision Castparts Corporation
We currently retain a Zacks Rank #3 (Hold) on Boeing. Considering
the fundamentals, we are maintaining our long-term Neutral
recommendation on the stock.