U.S. FAA grounds Boeing 787 over battery concerns

WASHINGTON/SEATTLE Thu Jan 17, 2013 7:54am 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 REUTERS, AS A SERVICE TO CLIENTS

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 REUTERS, AS A SERVICE TO CLIENTS

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WASHINGTON/SEATTLE (Reuters) - The U.S. Federal Aviation Administration said on Wednesday it would temporarily ground Boeing Co's(BA.N) 787s after a second incident involving battery failures caused one of the Dreamliner passenger jets to make an emergency landing in Japan.

The FAA said airlines would have to demonstrate that the lithium ion batteries involved were safe before they could resume flying Boeing's newest commercial airliner, but gave no details on when that could occur.

Boeing said in a statement it was confident the 787 was safe and that it stood by the plane's integrity.

"Boeing is committed to supporting the FAA and finding answers as quickly as possible. The company is working around the clock with its customers and the various regulatory and investigative authorities. We will make available the entire resources of The Boeing Company to assist," Chief Executive Jim McNerney said.

Its shares fell 2 percent in after-hours trading to $72.75 after the FAA announcement. The shares of GS Yuasa Corp (6674.T), a Japanese company that makes batteries for the Dreamliner, fell sharply in early trading there.

"Ultimately, you can view it as a positive thing if they can resolve what the issues are and give people confidence in the safety of the aircraft. In the near-term, though, it's a negative. It's going to force the company to make significant investments," said Ken Herbert, an analyst at Imperial Capital in San Francisco.

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.

According to flight tracking website FlightAware, some seven Dreamliners were in the air Wednesday night as the FAA order came down, including a United Airlines flight that left Los Angeles for Houston just a few minutes before the order.

United said the planes already in the air would land as scheduled and that it would immediately comply with the FAA order.

GRAPHIC: Dreamliner incidents r.reuters.com/xej35t

VIDEO: Boeing's sleepless nights reut.rs/11z9Zi1

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 jetliners 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".

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.

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 aircraft, 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.

BATTERY PROBLEMS

In the latest incident, All Nippon Airways Co Ltd (9202.T) said instruments aboard a domestic flight indicated a battery error, triggering emergency warnings. The incident was described by a transport ministry official as "highly serious" - language used in international safety circles as indicating there could have been an accident.

That led ANA and Japan Airlines Co Ltd (9201.T) to ground their 24 Dreamliners pending checks. Japanese transportation officials said they could not immediately comment on the FAA decision, as did a spokesman for JAL. An ANA spokeswoman said the FAA's order meant the airline could not use its 787s on its U.S. routes.

But barring a prolonged grounding or a severe and uncontained crisis, aircraft industry sources say there is no immediate threat of cancellations for the plane, even after the FAA's decision to halt 787 flights.

Among other reasons, they cite the heavy costs of retraining and investing in new infrastructure, as well as a shortage of alternatives in an industry dominated by just two large jet suppliers.

The Dreamliner's problems could sharpen competition between Boeing and its European rival Airbus EAD.PA, which itself experienced a dip in sales for its A380 superjumbo following problems with wing cracks a year ago. The A380 crisis has since eased and most airlines report the aircraft are flying full.

(Addtional reporting by Olivier Fabre, Kentaro Sugiyama, Mari Saito, Yoshiyuki Osada, Dominic Lau, Tim Kelly, Deborah Charles, Tim Hepher, Anurag Kotoky, Jaroslaw Kowalski, Danilo Masoni and James Topham; Writing by Ben Berkowitz; Editing by Gary Hill and Andre Grenon)

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