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Boeing Dreamliner Grounding Hurts ANA, Japan Airlines Sales

ANA Holdings Inc. (9202), and Japan Airlines Co., the world’s biggest operators of Boeing Co. 787s, forecast a bigger impact this year from the plane’s grounding as they prepare to restart commercial flights with the Dreamliner.

The grounding will cut ANA’s sales by 9 billion yen ($92 million) in the year ending in March, compared with a 7 billion yen reduction a year earlier. Parking of the Dreamliner fleet will pare Japan Air (9201)’s sales by 4.8 billion yen and operating profit by 2.6 billion yen this year, Norikazu Saito, a managing executive officer, told reporters in Tokyo yesterday.

Shares of ANA fell the most in more than three weeks and Japan Airlines slumped the most seven months in Tokyo trading on the announcement. The carriers plan to resume commercial flights with Boeing’s most advanced jet in June after the melting of lithium-ion batteries on two planes grounded the fleet worldwide since Jan. 16.

“The earnings forecasts were worse than expected,” said Mitsushige Akino, who oversees the equivalent of $515 million in assets in Tokyo at Ichiyoshi Investment Management Co. “The 787s are still grounded and so aren’t helping. The bigger impact going forward will be the outlook for growth and how much weaker the yen gets, as that will push up costs.”

Photographer: Tomohiro Ohsumi/Bloomberg

A Boeing Co. 787 Dreamliner aircraft operated by All Nippon Airways Co. (ANA) taxies after a test flight at Haneda Airport in Tokyo. Close

A Boeing Co. 787 Dreamliner aircraft operated by All Nippon Airways Co. (ANA) taxies... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

A Boeing Co. 787 Dreamliner aircraft operated by All Nippon Airways Co. (ANA) taxies after a test flight at Haneda Airport in Tokyo.

Akino said he doesn’t hold JAL or ANA shares.

ANA, the biggest airline customer of the Dreamliner, dropped 1.4 percent to 209 yen as of 9:45 a.m. while Japan Air fell 4.9 percent to 4,700 yen.

‘No Small Impact’

“It’s not a small impact,” said Kiyoshi Tonomoto, a managing director at ANA, referring to the impact on sales from the grounding of 787. “The grounding is still affecting us this quarter. We’re going to try and get all the planes back in service in June.”

JAL, which relisted last year after a trip through bankruptcy, also fell as the carrier predicted profit for this fiscal year, ending March 31, would fall to 118 billion yen because of expenses including higher fuel costs and landing fees, compared with 172 billion yen last year. Last fiscal year, the 787 grounding cut sales by 1.7 billion yen and operating profit by 1.3 billion yen.

ANA, the biggest airline customer for the 787, said net income may rise 4 percent this year to 45 billion yen as it aims to cut 25 billion yen in costs. Sales may increase 9 percent to 1.61 trillion yen, it said in a statement.

66 Dreamliners

ANA has orders for 66 Dreamliners, while JAL has ordered 45. ANA has said it won’t change plans for introducing the 787s to its fleet as it expects to receive 10 more planes in the year to March. The carrier has 17 Dreamliners in its fleet.

The airline, which is using the Dreamliners to expand, also plans to set up a strategic investment unit in Singapore as of June to help boost operations in South-East Asia, it said yesterday. The company raised 174 billion yen in a share sale last year to buy planes and acquire stakes in other companies.

ANA Chief Executive Officer Shinichiro Ito and Boeing Commercial Airplanes President Ray Conner flew ANA’s initial 787 test flight on April 28. A Dreamliner test flight a day earlier by Ethiopian Airlines Enterprise was the first since the grounding.

U.S. air safety authorities haven’t determined what caused the battery faults that sparked a Jan. 7 fire on a JAL 787 in Boston and forced an emergency landing by an ANA jet in Japan nine days later. The grounding was the longest on a large commercial aircraft by U.S. and Japanese regulators since jets were introduced in the 1950s, surpassing the more than a month ban on Douglas DC-10s.

Repairs

ANA started repairs April 22 at four airports around Japan, according to Ryosei Nomura, a spokesman. JAL also has started fixing the batteries, according to Hisanori Iizuka, a spokesman for the carrier.

The cost for replacing the battery will be about $465,000 a plane in the U.S., the Federal Aviation Administration said. The fix adds about 150 pounds of weight to a 787.

ANA will conduct about 230 test flights for pilots with the upgraded 787s, Hiroyuki Ito, a senior executive vice president, said. ANA and JAL also have put in place a system to monitor the batteries during flights and transmit data to the ground, the carriers have said.

Boeing’s Conner has said the company will discuss compensation with individual airlines. It’s too early to decide whether the manufacturer will use lithium-ion batteries in the future, he said.

The Dreamliner is the only large commercial jet equipped with lithium-ion batteries as part of its power system. GS Yuasa Corp. (6674) makes the batteries, which are part of an electrical power conversion system built by France’s Thales SA. (HO) United Technologies Corp. (UTX)’s aerospace unit supplies the system, which uses enough electricity to power 400 homes.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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