- Boeing proposes solutions to the Federal Aviation
Administration (
FAA
) regarding 787′s battery troubles
- The company hopes for an early return of these planes to
flight status as the longer the planes remain grounded the
higher will be the compensation that it will have to pay to the
airlines
- The FAA will likely not rush through and take time before
giving its approval to the proposed solutions
Boeing (
BA
) has submitted a proposal to fix the 787 battery issues to the
Federal Aviation Administration (
FAA
). The company now hopes for a quick return of its 787
Dreamliners to flight status. These planes were grounded by
the FAA six weeks back after a battery on board of a 787 caught
fire at Boston Airport and another 787 was forced to make an
emergency landing in Japan due to smoke.
The FAA on its part will likely not rush through the approval of
Boeing's proposal as the issue relates to passenger safety. The
agency issued a statement that said, "The safety of the flying
public is our top priority and we won't allow the 787 to return to
commercial service until we're confident that any proposed solution
has addressed the battery failure risks."
Boeing on the other hand is facing mounting losses as
manufactured 787s are not being delivered to their customers. The
company had voluntarily ceased delivery of 787s to airlines with
the FAA's grounding directive that came in mid-January. At present,
Boeing has 890 unfilled orders for the 787 Dreamliner. Prior
to the directive, the company was in the process of increasing the
production rate of 787s to meet to their huge order backlog.
We currently have
a stock
price estimate of $82 for Boeing
, approximately 5% above its current market price.
See
our complete analysis of Boeing here
Boeing's proposed solution for 787′s Li-ion
battery
Boeing had introduced Li-ion batteries for the first time on any
of its aircraft on the 787 in 2007 after getting FAA approval.
These batteries which then were known to have fire risks were
carefully evaluated by both Boeing and the FAA. But clearly the
evaluations proved insufficient as a series of incidents with
in-service 787s involved these Li-ion batteries.
The company has now proposed to introduce insulation
between cells in the battery so that overheating in one cell does
not get transferred to other cells. In addition, it has proposed to
enclose the battery within a stronger stainless steel box which
will have an exhaust pipe that will vent smoke or fumes outside the
aircraft. It is now up to the FAA to verify and accept these
changes, but the agency is not likely to approve these fixes before
April.
Losses mount from 787′s grounding
In the meantime, the current operators of the 787 are facing
huge losses. All Nippon Airways, which was the launch customer of
787, had received 17 of these planes till January and is suffering
from an estimated $1.1 million in losses per day. Air India, which
currently has six 787s, is waiting to fly these planes on the
lucrative India-Europe and India-Middle-East routes which is
crucial for the financial turnaround of the carrier. Other current
787 operators - Japan Airlines, Ethiopian Airlines, Chile's LAN
Airlines, LOT Polish Airlines, United and Qatar Airways - too are
facing losses from not being able to operate these planes. In all,
Boeing delivered 49 787s to eight airlines by mid-January. The
company could end up paying compensations to these airlines and
others that should have received their 787s by now.
In the first quarter so far, Boeing has been able to deliver
only 3 787s compared to 23 787 deliveries in the fourth quarter of
2012. If the flight status for the 787 is not restored by the end
of March, Boeing's first quarter revenues and profits will be
severely impacted.
Additionally, this incident has hurt Boeing's credibility. The
seriousness of the incident can be gauged from the fact that the
FAA issued a grounding directive for an aircraft type after nearly
34 years.
Airbus drops Li-ion batteries
Last week Airbus, the primary competitor of Boeing, announced
that it will not use Li-ion batteries in its forthcoming Airbus
A350 due to issues that caused the grounding of the 787. Instead it
will use traditional Nickel-Cadmium batteries that are already in
use in Airbus A380 and its other models.
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