Two incidents involving Boeing Co. (BA)’s 787 Dreamliners have renewed safety concerns about the airplane following battery malfunctions that grounded the fleet earlier this year.
Boeing’s shares had their biggest drop in two years after a fire on a parked 787 operated by Ethiopian Airlines Enterprise was put out by crews at London’s Heathrow airport yesterday. No one was on board and there were no injuries. TUI Travel Plc (TT/)’s charter arm Thomson Airways Ltd. said one of its 787s turned back to Manchester, England, because of an unspecified fault after it left for Orlando Sanford International Airport in Florida.
While the causes aren’t yet known, the events are a blow to Chicago-based Boeing as it tries to restore confidence in the 787, which was grounded worldwide in January after the melting of lithium-ion batteries on two of the planes. Airlines began restoring the twin-engine Dreamliners to commercial flights in April after U.S. regulators cleared the model for service.
“Another battery-related incident would represent the worst-case scenario for Boeing shares as it might cause investors to revisit financial consequences associated with another grounding of the aircraft, potential production stoppages and any sort of redesign,” Carter Copeland, a New York-based analyst with Barclays Plc who rates the company’s shares overweight, said in a research report. “This is not something that appears to be highly likely based on the information we have so far, but again it’s still early.”
Boeing slid 4.7 percent to $101.87 at yesterday’s close in New York, the biggest daily decline since Aug. 18, 2011. Earlier in the day, before news of the fire, the stock reached an intraday record high of $108.15. The shares have risen 35 percent this year, as the Standard & Poor’s 500 gained 18 percent.
The stock pared some of its losses after analysts said scorch marks indicated the fire at Heathrow probably wasn’t related to the lithium-ion batteries.
The Thomson flight that turned back yesterday took off on schedule today, said John Greenway, an airport official in Manchester. While a “small number” of components was replaced, Thomson isn’t disclosing details, Marc Heley, a spokesman for the company, said in an e-mailed statement. The company’s two other 787s were scheduled to fly from London’s Gatwick Airport, according to the statement.
The damage to the Ethiopian Airlines 787 appears to be above the crew rest area and “should have very little connection to electrical systems,” Douglas Harned, a New York-based aerospace analyst with Bernstein Research, wrote in a note to clients. He rates Boeing shares outperform.
“Most importantly, the two key lithium-ion batteries are far away from the location of the fire,” Harned said. He said he doesn’t see the incident as a risk to the 787 program.
“We have to wait for the investigation,” Henok Teferra, head of corporate communications at Ethiopian Airlines in Addis Ababa, the capital, said in a text message. “At this point all that we can say is that there was no flight safety issue and the aircraft was parked for hours, waiting for the scheduled return flight time, when smoke was observed.” The airline hasn’t grounded its three other 787s, the company said today in an e-mailed statement.
Chicago-based United Continental Holdings Inc. (UAL), the only U.S. carrier to fly the Dreamliner, and Japanese airline ANA Holdings said today they were operating their 787 aircraft as scheduled.
Boeing personnel and investigators from the U.K. and U.S. plan to try to find out what caused the blaze on the Ethiopian Airlines jet, which had been parked for eight hours. Boeing is working to fully understand and address the incident at Heathrow, Doug Alder, a company spokesman, said in an e-mail.
“The matter is still under investigation,” Lynn Lunsford, a U.S. Federal Aviation Administration spokesman, said by phone today. At the invitation of the U.K. authorities, the FAA is sending an official to Heathrow Airport in support of the investigation, the FAA said yesterday.
The Heathrow fire appears to have been in “a very complicated area of the structure that ties together the fuselage barrel, the tail cone and vertical fin loads,” Robert Mann, an aviation consultant in Port Washington, New York, said in an e-mail. “It will be a complicated repair -- if it is repairable. I think every current and prospective operator will be looking at the outcome.”
Rick Whittington, a New York-based aerospace analyst with Drexel Hamilton LLC, said that “we think this was a galley fire or perhaps some other piece of electrical equipment.” He said that “this shouldn’t have any measurable impact on earnings.”
“Let’s see what the safety investigators come up with over the weekend,” Whittington, who rates the shares buy, said in a phone interview. “I’m sure we’ll know by Monday.”
The FAA grounded the Dreamliner on Jan. 16 after the lithium-ion batteries overheated on two aircraft, with one catching fire in Boston with no passengers aboard. In that incident, a Japan Airlines Co. 787 experienced what U.S. safety investigators called an uncontrolled chain reaction that charred the battery. The second malfunction occurred on an ANA Holdings Inc. (9202) plane that took off from Japan and was forced to make an emergency landing.
The FAA cleared the plastic-composite 787 to fly again after Boeing redesigned the battery to include more protection around individual cells to contain any overheating, a steel case to prevent fire and a tube to vent any vapors outside the fuselage.
Ethiopian Airlines on April 27 made the first Dreamliner flight after the grounding was lifted, traveling from Addis Ababa to Nairobi. The carrier has four 787s.
Through June, Boeing had delivered 66 Dreamliners to 11 airlines and a leasing company, including six to United Continental Holdings Inc. The 787 has a list price of $206.8 million.
“We will not speculate on the cause of this issue, but will closely monitor the findings,” said Mary Ryan, a spokeswoman for United Continental Holdings. It received six Dreamliners in 2012 and will get two this year, Ryan said.
The Japanese carrier ANA has taken delivery of 20 Dreamliners, the most of any airline, and was the first to receive the plane, in September 2011, according to Boeing’s website.
Ryosei Nomura, a spokesman for ANA, said in a phone interview that the company was aware of “what happened to the Ethiopian Airlines aircraft, but we are still confirming the details. We are collecting information via Boeing. As of now, the 20 787 jets we own are all in their regular operation.”
Qantas Airways Ltd., Australia’s largest carrier, said its Jetstar budget airline had been briefed by Boeing on the initial investigation into the fire. Jetstar has ordered 14 of the 787 Dreamliners as it attempts to tap Asian demand for low-cost flights and is scheduled to receive the first aircraft in September.
“Jetstar has been briefed by Boeing on an investigation currently under way and we await the outcome,” Qantas Group spokesman Andrew McGinnes said today in an e-mailed statement. “Our first priority will always be ensuring these aircraft are completely safe to fly.”
In addition to the Jetstar order, Qantas has option and purchase rights for 50 Dreamliner jets for delivery from 2016, McGinnes said.
While Boeing officials maintain the 787’s reliability is on par with the Boeing 777 at this stage in its development, some industry watchers disagree.
“I’m hard-pressed to find any other aircraft to come into service with this level of conspicuous problems,” said Richard Aboulafia, vice president at Teal Group, an aerospace consultant based in Fairfax, Virginia. The 777 also had operational glitches and teething problems, “but there weren’t flames,” he said.