Japanese airlines ground 787s after latest emergency

TOKYO Wed Jan 16, 2013 9:53pm IST

An All Nippon Airways (ANA) Boeing 787 Dreamliner is seen after making an emergency landing at Takamatsu airport in western Japan January 16, 2013, in this photo taken by Kyodo. REUTERS/Kyodo

An All Nippon Airways (ANA) Boeing 787 Dreamliner is seen after making an emergency landing at Takamatsu airport in western Japan January 16, 2013, in this photo taken by Kyodo.

Credit: Reuters/Kyodo

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TOKYO (Reuters) - Japan's two leading airlines grounded their fleets of Boeing (BA.N) 787s on Wednesday after one of the Dreamliner passenger jets made an emergency landing, the latest in a series of incidents to heighten safety concerns over a plane many see as the future of commercial aviation.

Boeing's shares fell 3.3 percent as analysts began to lose some of their conviction in the stock, which had held up relatively well despite the dozen or so issues with the plane over the last six weeks.

All Nippon Airways Co (9202.T) said instruments aboard a domestic flight indicated a battery error, triggering emergency warnings. Shigeru Takano, a senior safety official at the Civil Aviation Bureau, said a second warning light indicated smoke.

Wednesday's incident, described by a transport ministry official as "highly serious" - language used in international safety circles as indicating there could have been an accident - is the latest mishap to hit the world's first mainly carbon-composite airliner in recent days.

"I think you're nearing the tipping point where they need to regard this as a serious crisis," said Richard Aboulafia, a senior analyst with the Teal Group in Fairfax, Virginia. "This is going to change people's perception of the aircraft if they don't act quickly."

ANA, which said the battery in the forward cargo hold was the same lithium-ion type as one involved in a fire on another Dreamliner at a U.S. airport last week, grounded all 17 of its 787s, and Japan Airlines Co (9201.T) suspended its 787 flights scheduled for Wednesday and Thursday.

The two airlines, which operate about half of the 50 Dreamliners delivered to date, said they would decide on Thursday whether to resume Dreamliner flights the following day.

For graphic on Dreamliner incidents: click r.reuters.com/xej35t

COMPREHENSIVE REVIEW

The 787, which has a list price of $207 million, represents a leap in the way planes are designed and built, but the project has been plagued by cost overruns and years of delays. Some have suggested Boeing's rush to get planes built after those delays resulted in the recent problems, a charge the company denies.

Both the U.S. Federal Aviation Administration (FAA) and the National Transportation Safety Board (NTSB) said they were monitoring the latest incident as part of a comprehensive review of the Dreamliner announced late last week. Financial analysts warned of the impact on a wider universe of companies.

"This is another major negative for the B787 and its supplier(s) ... as this heightens the risk of a forced slowdown of the production ramp-up," Kepler analyst Christophe Menard said, adding the latest incident was "extremely disturbing."

It was not just analysts, however, passengers were also nervous about boarding the plane after the latest upset.

At Warsaw's Chopin Airport, the LOT national carrier was announcing over the public address system that one of its Dreamliner aircraft was making its maiden trans-Atlantic flight on Wednesday. Some of the passengers checking in for the flight to Chicago expressed misgivings.

"We have decided to fly on the Dreamliner, but we are a bit worried since we've heard information that this plane is full of defects, albeit they are not really major," said Daniel Rekret, 34, who was traveling with his wife and children.

ALARM TRIGGERED

A spokesman for Osaka Airport Authority said ANA flight 692 landed at Takamatsu at 8:45 a.m. local time. All 129 passengers and eight crew evacuated via the plane's inflatable chutes. Chief Cabinet Secretary Yoshihide Suga said five people were slightly injured.

At a news conference - where ANA's Vice President Osamu Shinobe bowed deeply in apology - the carrier said a battery in the forward cargo hold triggered emergency warnings to the pilots, who decided on the emergency action. "There was a battery alert in the cockpit and there was an odd smell detected in the cockpit and cabin, and (the pilot) decided to make an emergency landing," Shinobe said.

In a statement later, ANA said the main battery in the forward electrical equipment bay was discolored and there were signs of leakage.

Passengers leaving the flight told local TV there was an odor like burning plastic on the plane as soon as it took off. Marc Birtel, a Boeing spokesman, said: "We've seen the reports, we're aware of the events and are working with our customer."

Robert Stallard, an analyst at RBC Capital Markets, said lost revenue at the Japanese airlines could prompt compensation from Boeing. "What started as a series of relatively minor, isolated incidents now threatens to overhang Boeing until it can return confidence, and this looks to be a near-term challenge given the media's draw to all things 787," he said.

UNDER REVIEW

In Asia, only the Japanese and Air India have the Dreamliner in service, but other airlines are among those globally to have ordered around 850 of the new aircraft.

Australia's Qantas Airways (QAN.AX) said its order for 15 Dreamliners was on track, with its Jetstar subsidiary due to take delivery of the first planes later this year.

India's regulator said it would wait for a safety report from Boeing, expected later Wednesday, before deciding whether to ground the six Dreamliners operated by state-owned Air India.

United Airlines, the only U.S. carrier now flying the 787, said it was not taking any immediate action in response to the latest incident.

The Dreamliner's problems echo those of rival Airbus EAD.PA, which a year ago survived a crisis of confidence after a series of incidents with wing cracks on its A380, the world's largest passenger jet. Those problems tested the manufacturer's relations with airlines, but no plane orders were canceled.

COST BURDENS

Shares in GS Yuasa Corp (6674.T), a Japanese company that makes batteries for the Dreamliner, fell 4.5 percent. The Kyoto-based company said it was too early to comment on the situation.

The use of new battery technology is among the cost-saving features of the 787, which Boeing says burns 20 percent less fuel than rival jets using older technology.

Lithium-ion batteries can catch fire if they are overcharged, and once alight, they are difficult to put out as the chemicals produce oxygen, Boeing's chief engineer for the 787, Mike Sinnett, told reporters last week. He said lithium-ion was not the only battery choice, but "it was the right choice".

The 787 is Boeing's first new jet in more than a decade, and the company's financial fortunes are largely tied to its success. The plane offers airlines unprecedented fuel economy, but the huge investment to develop it coupled with years of delay in delivery has caused headaches for customers, hurt Boeing financially, and created a delivery bottleneck.

Boeing has said it will at least break even on the cost of building the 1,100 new 787s it expects to deliver over the next decade. Some analysts, however, say Boeing may never make money from the plane, given its enormous development cost.

Any additional cost from fixing problems discovered by the string of recent incidents would affect those forecasts, and could hit Boeing's bottom line more quickly if it has to stop delivering planes, analysts said.

(Addtional reporting by Olivier Fabre, Kentaro Sugiyama, Mari Saito, Yoshiyuki Osada, Deborah Charles, Alwyn Scott, Tim Hepher, Anurag Kotoky, Jaroslaw Kowalski, Danilo Masoni and James Topham; Writing by Ian Geoghegan and Ben Berkowitz; Editing by Paul Tait, Alex Richardson and Maureen Bavdek)

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