BREAKINGVIEWS - Boeing flagship glitches look like mere turbulence

NEW YORK Thu Jan 17, 2013 12:15pm IST

A mechanic of All Nippon Airways (ANA) Boeing Co's 787 Dreamliner plane is seen through a steel fence at Haneda airport in Tokyo January 16, 2013. REUTERS/Toru Hanai

A mechanic of All Nippon Airways (ANA) Boeing Co's 787 Dreamliner plane is seen through a steel fence at Haneda airport in Tokyo January 16, 2013.

Credit: Reuters/Toru Hanai

Stocks

   

NEW YORK (Reuters Breakingviews) - The grounding of two Japanese airlines' Dreamliner fleets is a warning. Boeing (BA.N) needs to fix the glitches to ensure a smooth future for the much ballyhooed and delayed 787. But the problems aren't looking any bigger than the Airbus EAD.PA A380's teething troubles. Investors' mild reaction - a 4 percent drop in the stock, knocking market value down by about $2 billion - seems right.

Boeing's new flagship, which ran years behind schedule and far over budget in development, was intended to corner the global point-to-point market - delivering passengers to their final destination rather than just flying them between major hubs like New York or London. So far Boeing has orders for slightly fewer than 900 aircraft and needs to sell at least 1,100 to start making a profit on the Dreamliner, according to Morningstar.

Overheating and possible fires associated with lithium-ion batteries - a novelty on planes - is far from the kind of marketing Boeing would hope for. But big new jets that push technological frontiers typically suffer problems, which also get more attention than they might on already established models. Airbus's giant A380 experienced similar setbacks. Engine failure on a Qantas (QAN.AX) flight in 2010 forced it to return to Singapore, and cracks in the wings of some aircraft helped saddle the maker with a repair bill that ran into the hundreds of millions of euros.

Investor reactions can cause markets to overshoot. BP's (BP.L) shares halved in value in the three months after its Gulf of Mexico spill three years ago, and they have regained half the lost ground. Toyota Motor (7203.T) stock rebounded quickly after plunging following the recall of about 8 million cars worldwide over gas pedal issues in 2009 and 2010 - perhaps an incident more comparable to Boeing's current troubles.

This time, Mr. Market may have got it right. Sure, Boeing needs to find answers, and quickly. But battery concerns have been overcome before, in uses like laptop computers and electric cars. Though the Dreamliner may have hit turbulence, so far there is no reason to make for the emergency exit.

CONTEXT NEWS

- Two Japanese airlines on January 16 grounded their fleets of Boeing 787 Dreamliner aircraft after an All Nippon Airways (9202.T) flight was forced to make an emergency landing.

- ANA and Japan Airlines (9201.T) stopped flying their 24 Dreamliners, almost half the world's fleet, for at least two days. United Airlines has continued flying 787s.

- On January 7 there was a fire in a lithium-ion battery pack on a Japan Airlines 787 in Boston.

- Boeing's stock price fell 3.8 percent to $74 a share by mid-afternoon on January 16.

(Editing by Richard Beales and Martin Langfield)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Jan Dhan Yojana

REUTERS SHOWCASE

Japan Trip

Japan Trip

Modi eyes breakthrough nuclear pact on Japan trip.  Full Article 

Chance For Reform

Chance For Reform

India's coal crunch - a chance to revamp, reallocate and revive.  Full Article 

E-Commerce

E-Commerce

Ratan Tata invests in online retailer Snapdeal.  Full Article 

Top Priority

Top Priority

Finance minister says food inflation is top priority.  Full Article 

Deal Talk

Deal Talk

Who wants to buy Snapchat? Microsoft, Google, Apple, Alibaba.  Video 

Fresh Funding

Fresh Funding

Tiger Global leads $65 million funding in Indian messaging app Hike.  Full Article 

GDP Preview

GDP Preview

Economy likely grew faster in June quarter: Reuters poll.  Full Article 

Safety Net

Safety Net

SEBI revamps trading safety-net rules.  Full Article 

Fraud Investigation

Fraud Investigation

IMF's Lagarde put under investigation in French fraud case.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage