Boeing’s (NYSE:BA) 787 Dreamliner began 2013 with battery meltdowns on two different aircraft — a plane operated by Japan Airlines (JALFQ.PK) and one flying for ANA Holdings (ALNPY.PK). Those incidents forced several investigations and, more significantly for Boeing, a worldwide grounding of the entire 787 fleet, the first such global grounding in 30 years. During the three months the Dreamliner was out of the air, Boeing engineers and other industry experts redesigned the system so that the battery cells would be separated and insulated, which put the plane back in the sky in April. But what followed next was a series of well-publicized problems, including even more problems with the plane’s battery.
Thanks to a faulty emergency beacon, an Ethiopian Airlines 787 caught fire at Heathrow Airport, and Norwegian Air Shuttle, the third-largest budget airline in Europe, was forced to rely on Boeing rival Airbus (EADSY.PK) when problems with an electrical system, a hydraulic pump, and a brake indicator kept its fleet of 787s grounded. A litany of mechanical problems is “not where we want the airplane to be, we’re not satisfied with that reliability level of the airplane,” Mike Fleming, Boeing’s vice president for 787 support and services, said during a Friday interview at a news conference in Oslo where Norwegian Air Shuttle is based. The jet’s reliability is improving, he explained, but it is still not satisfactory. Improving reliability means that two flights out of every 100 the Dreamliner makes are delayed, which translates to a reliability rate of 98 percent, a slightly better figure than October’s 97 percent but still well below targets.
For comparison, “the 777 today flies at 99.4 percent, and that’s the benchmark that the 787 needs to attain,” Fleming explained, according to Reuters’ coverage of the news conference. Boeing introduced the 777 in 1995, he continued, and it was not until “the 1999 timeframe we saw sustained performance over 99 percent in that fleet.” In order “to get the fleet above 99 percent you have to keep working every day, so my guess is that it will be similar to what we had with the 777,” he added.
Although a battery fix has been implemented, further battery problems have materialized in recent months. In November, Japan Airlines, known as JAL, reported that a cockpit indicator showed a problem with the battery, and earlier this month, a JAL Dreamliner remained grounded at Tokyo’s Narita International Airport after maintenance engineers detected white smoke venting from the plane. However, while battery problems were reported, the incident showed that Boeing’s fix prevented a meltdown like the ones experienced last January. “We recently had a single-cell failure in a battery on another customer’s airplane and we didn’t get propagation of that to other cells, other cells continued to function,” Fleming said. “The containment box worked as supposed to and the vapor vented overboard as supposed to.”
Fleming maintained that Boeing “didn’t assume we would never have another cell failure. We always assume we’re going to have a failure and we design the airplane with a redundancy.” His comments included an admission of responsibility for the problems. “When our airplane breaks and our service doesn’t deliver on what it’s supposed to, we take responsibility,” Fleming said.
One of the Dreamliner’s key selling points, which has likely earned it much favor from airline executives, is that it consumes approximately 20 percent less fuel than other aircraft of the same size. Fuel is an enormous share of costs for airlines, and fuel costs have increased dramatically recently. The success of the Dreamliner is critical for the company moving forward. Airline traffic is still growing in pretty much every corner of the world, but it is expected to grow most quickly in Asia, which means that is where most new demand will originate. The manufacturer expects China will need 5,580 planes, valued at $780 billion in total, in the next 20 years to support growing demand for travel and an eventual pickup in shipping. That projected addition represents a tripling of China’s fleet.
However, many of the mechanical malfunctions the 787 jets have experienced were rooted in the very innovations that made the plane unique. The Dreamliner’s computer and electrical systems, like the plane’s batteries, depend on technologies that had never been used before in jets. Solid-state components are a key part of the plane’s powerful electrical and computer systems that Boeing used in place of many traditional mechanical parts and wiring to make the Dreamliner lighter and burn less fuel.
While airline operators are attracted by the Dreamliner’s efficiency, the slew of technical problems have left Boeing to fight to rebuild trust in the wide-body plane, which costs about $212 million at list price. Echoing the comments Fleming made in Oslo, Boeing Commercial Airplanes Marketing Vice President Randy Tinseth acknowledged at a late September press conference in the Chilean capital of Santiago that the reliability of the 787 was “not as good as we’d like to see it. It’s not as good as our customers would like to see it. So we’re looking at ways to improve that reliability over time.” He said he would “refer to the problems as teething problems, I don’t think they’re systemic.”
Aerospace industry experts have largely agreed. But the tenor of their commentary has begun to change. Experts termed JAL’s January battery incident troubling, even if they hesitated at drawing broader conclusions. For example, Teal Group aerospace analyst Richard Aboulafia told Reuters that the evidence of another batter problem raised two questions: whether the containment system developed by Boeing engineers is effective and whether the actual cause of the battery problems will be discovered. “The real issue with containing the problem, rather than getting to the root cause of the problem, concerns economics,” he said. “Incidents can be successfully contained, but if you continue to see incidents like these, you’ve got a mounting bill from taking jets offline, and repairing their battery systems. You’ve got an image problem, too.”
Investors, who bid shares of Boeing up 82.74 percent in 2013, have by and large remained unfazed by the numerous technical problems with the 787. Although, shares did close down 0.5 percent at $140.01 the day of the company’s last Dreamliner problem. Still, as this movement on the stock chart indicates, investors realize the company’s earnings potential; over recent quarters, Boeing’s revenue growth has slightly outpaced the industry average of 9.6 percent, and earnings per share rose 11.9 percent from year-ago levels in the most recent quarter. Shares opened at $140.40 Friday morning.
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