A Week Before Earnings, Boeing is Flanked by Issues
“In a move that escalates its mounting problems, The Boeing Company today (Jan. 17) rejected union offers to extend existing contracts and instead gave its ‘last best and final’ offers to the Society of Professional Engineering Employees in Aerospace,” reported the union, which represents 23,000 Boeing (NYSE:BA) engineers and technical workers.
Boeing has been negotiating with the union for over a year on four-year contracts that expired in November of 2012. The union won progress on better pay and limiting reductions to their healthcare benefits, but is unhappy with proposed cuts to current and future pensions.
Those mounting problems that the union referenced include the battery and electric issues with the company’s 787 Dreamliner. Fleets around the globe were grounded after two consecutive problems with batteries that overheated or caught on fire. The complications have sent the stock reeling, with shares hitting $73.45 on Tuesday morning, their lowest since November, before stabilizing to a floor around $74.
Investigators have been deployed around the world to find out what is wrong. In the meantime, focus has turned to the Federal Aviation Administration, which certified the aircraft…
The 787 is just the second major aircraft to use lithium-ion batteries. Reuters reports that the Airbus also received approval to use lithium-ion batteries in its A380 superjumbo jet. But because it is a relatively new technology, the FAA had no existing process to certify it, meaning they had to develop special conditions.
Because lithium-ion batteries run a greater risk of overheating or catching on fire, the FAA required the system to have four fail safes against overcharging, and a containment system in the event of a fire. The FAA’s special conditions were contested by some experts, including the Air Line Pilots Association International. They contested that there was still a chance of fire despite the fail safes, and that any risk of fire is unacceptable.
Early critics of lithium-ion technology are waiting to get the last laugh. A report from the New York Times indicates that the batteries were not overcharged, suggesting that there is either a problem with the electric system, or the battery itself. In either case, the cost to Boeing and 787 suppliers and carriers increases…
The estimated cost to All Nippon Airways to keep its fleet of Dreamliners grounded is as high as $1.1 million per day. The Japanese airline has 17 Dreamliners. United Air Lines (NYSE:UAL) owns six of the aircraft with orders for 44 more. It’s unclear if airlines, which have showed support for Boeing so far, will seek compensation for costs related to the grounding.
As the main supplier of electrical systems to the 787, and the company that build the auxiliary unit involved in one of the incidents, United Technologies Corp. (NYSE:UTX) has also come under investigation. GS Yuasa Corp. builds the lithium-ion battery.
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