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Boeing 787 Groundings Traced to One-of-a-Kind Technology

Jan. 17 (Bloomberg) -- Carol Massar looks at the different strategies employed by Boeing and Airbus for designing planes. She speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Boeing Co. (BA)’s 787 Dreamliner, the planemaker’s most advanced jet ever, is in trouble because of the technology that sets the aircraft apart from its peers.

The U.S. Federal Aviation Administration ordered yesterday that 787s in the U.S. be grounded until their batteries are shown to be safe, the first such action since 1979. The move came hours after two Japanese airlines parked half the world’s Dreamliners following a battery fire and an emergency landing.

Boeing’s plight stems from choices it made years ago to push the boundaries of aircraft design in a bid to boost fuel economy. The 787 uses unprecedented amounts of electricity, five times as much as in conventional jets, so less power is diverted from the engines to run on-board systems. Boeing depends in part on lithium-ion batteries, which provide quick, powerful charges and can also overheat and catch fire.

“These aren’t minor issues -- it isn’t a matter of a coffee maker going on the fritz or the in-flight entertainment system not working as expected,” said Henry Harteveldt, an aviation analyst at Hudson Crossing in San Francisco. “It could be expensive and lengthy to fix the problem.”

The Dreamliner already was the focus of a special FAA review triggered by last week’s fire on a Japan Airlines Co. (9201) jet at a Boston airport gate. FAA officials certified the plane before it entered service in late 2011 and said last week that while they considered the plane to be safe, they wanted the evaluation to remove any doubts.

Photographer: Andrew Harrer/Bloomberg

A US Airways Group Inc. airplane takes off past a Boeing Co. 787 Dreamliner on display during its global Dream Tour at Reagan National Airport in Washington, D.C., U.S.. Close

A US Airways Group Inc. airplane takes off past a Boeing Co. 787 Dreamliner on display... Read More

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Photographer: Andrew Harrer/Bloomberg

A US Airways Group Inc. airplane takes off past a Boeing Co. 787 Dreamliner on display during its global Dream Tour at Reagan National Airport in Washington, D.C., U.S..

Emergency Landing

Fresh questions surfaced yesterday after a battery-fault warning on an All Nippon Airways Co. (9202) Dreamliner in Japan forced an emergency landing, and at day’s end in Washington, the FAA issued its airworthiness directive.

United Continental Holdings Inc. (UAL), whose six Dreamliners make it the lone U.S. operator so far, pledged immediate compliance with the FAA, which didn’t say what corrective steps are needed or how long they may take. Christen David, a United spokeswoman, declined to comment on any costs that might result from repairs or passenger rebookings.

Japan’s Transport Ministry said it also would order a grounding, while Indian aviation regulators said Air India will park its fleet of six 787s. There are 50 Dreamliners in service worldwide, according to the FAA, whose grounding directive was the first for an entire model in almost 34 years, after a DC-10 crash in Chicago killed 271 people.

Boeing’s Response

The moves are a blow to Boeing as Chief Executive Officer Jim McNerney works to increase deliveries, trying to shed the weight of more than three years of Dreamliner delays. Boeing is set to double 787 output this year, to 10 planes a month, to help fill remaining orders for about 800.

“We are confident the 787 is safe and we stand behind its integrity,” McNerney said in a statement. “We will be taking every necessary step in the coming days to assure our customers and the traveling public of the 787’s safety and to return the airplanes to service.”

Boeing rose 1.2 percent to $75.26 at the close in New York, after two people familiar with the matter said the FAA was investigating whether defective batteries from the same batch were responsible for the Dreamliner incidents. Yesterday, the stock dropped 3.4 percent, the biggest decline for the Chicago- based planemaker since June 1.

The shares have yet to recover from the slide that set in when Boeing disclosed the first of seven delays in the 787’s initial delivery. Through yesterday, the stock had fallen 27 percent since the day before that October 2007 announcement.

Boeing Finances?

“There’s no impact as of now” to Boeing’s finances, Chaz Bickers, a company spokesman, said by e-mail when asked about the FAA’s action. “But it’s too early to know more than that.”

He declined to comment on any Boeing contracts with customers.

A relatively quick repair without design changes would minimize any pressure on the shares from the FAA grounding, said Janna Sampson, who helps manage more than $3 billion, including Boeing stock, for OakBrook Investments LLC in Lisle, Illinois.

“There is a chance that this will be a problem difficult to diagnose or one that requires a substantial redesign to fix,” Sampson said today by e-mail. “In that case, the delays in production may be significant and the impact on Boeing will be greater.”

Moody’s Investors Service told clients yesterday that Boeing remains at risk.

The grounding “could pose new operating and financial pressures for Boeing, including further delay in delivery schedules and future order flow, as well as ongoing reputational risk,” Senior Vice President Russell Solomon said in a note.

Fuel Savings

Above all else, the 787 was designed to conserve fuel, the largest cost for airlines. Boeing promises a 20 percent gain in fuel efficiency over comparably sized planes.

Lightweight composite materials, the greater use of electrical power, wings with improved aerodynamics and new engines all help shave fuel burn compared with the Boeing 767 that the Dreamliner replaces, said Hans Weber, the CEO of aerospace consultant Tecop International Inc. in San Diego.

Boeing lists a range for the 787-8 model, the first to enter service, of 8,200 nautical miles (15,200 kilometers). It seats as many as 250 passengers, retails for $207 million and is aimed at airlines that want long-haul nonstop routes without resorting to a bigger 777 or a 747 jumbo jet. Japan Airlines, for example, has a 787 serving Boston and Tokyo.

‘Pioneering Effort’

“The 787 is a pioneering effort by necessity,” Weber said. “The plane is very tightly designed to what Boeing’s perception is for the future of the market.”

Electricity on the Dreamliner powers the usual needs, such as instruments and air conditioning, as well as new touches that include dimmable windows in place of traditional pull-down plastic shades. Boeing also opted to turn to electricity for functions such as de-icing the wings.

The electrical content is unique to the 787, shunning traditional power systems that rely on hot, high-pressure air bled off the engines. Boeing said its approach extracts 35 percent less power from the engines than conventional pneumatic systems, so the extra air goes to produce more efficient thrust.

“The lithium-ion battery was the right choice given the design constraints that we had,” Mike Sinnett, Boeing’s 787 chief engineer, told reporters last week on a conference call.

“It doesn’t mean that it was the only choice. It means that it was the right choice.”

Dreamliners carry the batteries in electronics bays in their bellies. Sinnett described the units as “something that’s one and a half to two times bigger than your car battery.”

Battery Supplier

The lithium-ion batteries are made by Tokyo-based GS Yuasa Corp. (6674) and are part of an electrical power conversion system built by France’s Thales SA. (HO) United Technologies Corp.’s Aerospace Systems unit supplies the overall system, which uses 1.45 megawatts of electricity, enough to power 400 homes.

Resolving the electrical questions would restore the luster that drew airlines to the Dreamliner in the first place, from fuel savings to more-comfortable cabins, said Hudson Crossing’s Harteveldt. The trick will be in successfully making changes to a plane with an array of technological firsts, he said.

“Don’t underestimate the complexity of the Dreamliner,” he said. “This isn’t like taking your laptop to the computer repair shop and getting a phone call the next day. This is not a quick fix.”

To contact the reporters on this story: Susanna Ray in Seattle at sray7@bloomberg.net; Thomas Black in Dallas at tblack@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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