Boeing’s Bad-News-Bears Brigade Grows Larger

Japan’s two largest airlines, All Nippon Airways and Japan Airlines, grounded their fleets of Boeing (NYSE:BA) 787 Dreamliners on Wednesday after a battery issue on a domestic flight forced an emergency landing.

Is this the nail in the coffin?Bear Crossing

The short answer is: no, but it’s obviously not good. Reuters reports that a Japanese transport ministry official described the incident as “highly serious,” language that is reportedly used in international safety circles to mean that there could have been an accident.

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Reports indicate that the failure occurred in the same lithium-ion type battery that failed and caused a fire in a different Dreamliner at a U.S. airport last week. That fire, combined with a string of other electrical mishaps and fuel leaks, prompted the U.S. Federal Aviation Administration to open a formal review of the aircraft…

“In light of a series of recent events, the FAA will conduct a comprehensive review of the Boeing 787 critical systems, including the design, manufacture and assembly,” reported the Federal Aviation Administration in a statement on January 11. “The purpose of the review is to validate the work conducted during the certification process and further ensure that the aircraft meets the FAA’s high level of safety.” That is, they believe the plane is safe, they are just double-checking their work.

Understandably, the stock is trading down on Wednesday morning on heavy volume. Boeing’s losses are dragging hard on the Dow Jones Industrial Average, which was off a quarter of a percent.

Boeing Company (The) Common Sto Stock Chart - BA Interactive Chart - Yahoo! Finance

Two obvious questions emerge from the debacle: what will be the impact on Boeing, and what will be the impact on airlines?

For its part, as of January 4, Boeing had 848 total orders for the 787 Dreamliner, 49 of which have been delivered, leaving 799 unfilled. At about $225.2 million per plane ($206.8 million for the 787-8, $243.6 million for the 787-9), it doesn’t take a quant to figure out that there is nearly $200 billion sitting on the table here.

Here are the airlines that have received deliveries so far:

Airline Ordered Delivered
Air India 27 5
All Nippon Airways 66 17
Ethiopian Airlines 10 4
Japan Airlines 45 7
LAN Airlines 26 3
LOT Polish Airlines 8 2
Qatar Airways 30 5
United Air Lines 50 6

United Air Lines (NYSE:UAL) was forced to ground a plane in 2012 because of an electrical issue. As it stands, airlines have stood behind the plane and have not cancelled any orders, but there is growing concern that passengers will decide not to fly on a Dreamliner because of safety or delay concerns.

Earlier in 2012, Qatar Airways found a fault with engines on the Dreamliner made by General Electric (NYSE:GE), but the minor issue doesn’t seem to have reappeared since.

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