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.
- 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.