Tech

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

For more than a week, Samsung's shares survived reports of its exploding Note 7 smartphone, a worldwide recall, and news of the "heartbreaking" $1 billion bill. Yet calls by airlines and regulators for passengers to follow somewhat mundane and obvious precautions helped send the stock down the most in more than three years.

That the shares fell Monday three times as steeply as the MSCI Asia Pacific index may perhaps be explained by the Note 7 incident combining two of the modern world's most immutable traits: Smartphones are ubiquitous, and airline safety is emotive.

Note a Problem
Samsung's shares remained resilient after it recalled 2.5 million Note 7 units following reports that about three dozen caught fire. They then sank after aviation safety warnings
Source: Bloomberg

Airlines haven't been blind to the risks involved in carrying lithium-ion batteries. The same quality that makes them indispensable for electronic consumer goods -- their ability to cram impressive quantities of energy into a tiny, light package -- can also occasionally cause them to burn at temperatures hot enough to melt aluminum.

As a result, the UN aviation agency banned the carriage of bulk lithium-ion batteries on passenger planes earlier this year. That's modestly good news for the cargo airlines that have remained in the business: Air transport of the batteries, which covers as much as 30 percent of the 5.5 billion cells produced each year, is a much less competitive market now that passenger airlines are mostly out of the picture.

Fire in the Hold
Aircraft incidents involving lithium-ion batteries are relatively rare. But they're getting more common
Source: U.S. Federal Aviation Administration
Note: 2015 cargo tally includes one incident on the ground involving a pallet for a UPS cargo plane. UPS incidents in 2006 and 2010 and an Asiana incident in 2011 aren't included as the source of the fire wasn't definitively traced to lithium-ion batteries. Lithium metal non-rechargeable batteries haven't been included.

But it's not going to be enough to prevent all such fires. Even before the ban, incidents involving lithium-ion batteries on passenger aircraft had grown more common than those on cargo planes, according to the U.S. Federal Aviation Administration. Li-ion-powered hoverboards were banned by most airlines long before Samsung's troubles.

Smartphone Ubiquity
The pervasiveness of mobile phones has more than doubled in the space of a decade with global wireless penetration now surpassing 100 percent.
Source: Bloomberg Intelligence

The good news for carriers, and electronics manufacturers, is that the lithium-ion ecosystem is too big to fail in the face of such a risk. While an onboard fire is every pilot's and crew member's worst nightmare, the number of lithium-ion incidents is trifling when you consider the universal reach of these power sources. In 2015, 3.5 billion passengers caught a flight, yet just 11 such incidents were reported to the FAA. Your odds of being on a plane with a lithium-ion battery fire are pretty similar to the infinitesimal risk of being involved in an outright crash.

Airline regulations permit a surprisingly wide range of hazardous materials on board -- you can typically carry up to 5 kilograms of ammunition in checked baggage, and avalanche rescue backpacks containing explosive-charged airbags are often permitted in overhead lockers.

It's not something that carriers like to advertise, but aviation safety is as much about reducing risk to acceptable levels as eliminating it altogether. Investors should at least take note of that perspective.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Some passenger airlines have cargo planes that could still carry the cells under International Civil Aviation Organization regulations. However, that sort of division of labor isn't always popular with cargo pilots, so carriers including Cathay Pacific and Qatar Airways have removed them from those flights as well.

To contact the authors of this story:
David Fickling in Sydney at dfickling@bloomberg.net
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net