Boeing stays aloft despite troubles with 787
It had nothing to do with the Dreamliner.
Executives and select employees cheered the official delivery of a different plane, a new 777-300ER aircraft. American is the first U.S. carrier to own the dual-aisle plane. Festivities included the requisite ribbon-cutting, speeches by executives and applause from the 100 or so workers.
In other words, for Chicago-based Boeing Co. -- embroiled in a three-month public relations fiasco about batteries that overheated aboard its highly touted 787 Dreamliner -- it was business as usual. Another plane out the door.
After 100 days of breathless and near-daily news reports around the world about grounded Boeing 787 Dreamliners, casual observers might conclude that Boeing, an aviation and defense behemoth, was on the ropes financially and that battery-overheating problems with its new airplane were among the gravest in aviation history.
The number of passengers killed on Dreamliners is zero, as is the number of injuries. The problematic batteries don't even have anything to do with the plane's basic ability to fly.
And despite the attention, the grounded plane had little impact on Americans. Chicago-based United Airlines is the only U.S. carrier to have 787s, and it has only six in a fleet of 700 planes.
Maybe most telling about the impact of the Dreamliner battery crisis is its effect on Boeing as a company. "We haven't talked specifics on the numbers, but it's minor in comparison to the overall results," Boeing Chief Financial Officer Greg Smith said last week in talking about the battery problem's effect on first-quarter earnings, which surpassed Wall Street expectations.
So far, the battery episode doesn't seem to have damaged the profits of the world's largest aircraft-maker. Indeed, it expects to generate the same companywide profit for 2013 that it announced before the battery crisis and will this year deliver all the scheduled Dreamliners, 25 of which are completed but parked around Boeing factories in Everett and North Charleston, S.C., because deliveries were halted.
Airlines haven't soured on the company. Boeing's new orders are strong. Not a single customer canceled an order for a Dreamliner, which lists for $207 million, as a result of the battery problems.
And investors seem to believe in the company. Boeing stock closed Friday at a five-year high before dropping slightly this week.
F. Carter Leake, an aerospace analyst with BB&T Capital Markets, issued a report last week titled, "The 787 Crisis: Like it Never Happened at All," saying Boeing's stellar quarter had him "eating a large plate of crow" because of his formerly negative view of the company based on the battery problems.
"Not only did Boeing resolve all issues with the FAA in short order, but it did so at rounding-error cost," Leake wrote, citing Boeing's success with other airplane lines. "We are returning to our pre-787 crisis thesis that posited that Boeing's current and planned mix of platforms is arguably the best in its history."
All that's not to say overheating batteries weren't a serious problem -- Boeing officials are careful not to pooh-pooh it, and for three months the company poured resources into addressing the problem batteries.
"The grounding of the fleet was a very significant event for Boeing and for our customers," said Mike Sinnett, chief project engineer for the 787. "We take it very, very seriously."
But experts say the saga will be remembered in the long term only as minor turbulence in launching a highly successful new plane model. "Five years from now, this will all be forgotten," said Aaron Gellman, an aviation expert at Northwestern University.
Henry Harteveldt, a travel analyst with Hudson Crossing, said he was surprised by the intense interest in the 787's battery.
"No planes crashed, no one was hurt, no one died," he said. "I don't think the 787 will have a long-lasting black mark or stigma over it."
There's no denying the Dreamliner has been problem-plagued, starting with delivering the first plane more than three years late because of design and production delays. And then there were the "teething problems," the fuel leaks and other minor mishaps that are common in new plane models.
But then in January the lithium-ion battery problems surfaced.
The Federal Aviation Administration grounded Dreamliners in the U.S. after overheating battery incidents on two Japanese planes, one in Boston and one in Japan. The ban was the first since the McDonnell Douglas DC-10 had its airworthiness certificate suspended after a deadly 1979 crash soon after takeoff from Chicago's O'Hare International Airport.
Aviation regulators around the world followed the FAA in grounding Dreamliners. Boeing halted deliveries of the plane. Investigations ensued -- by Boeing, the FAA and the National Transportation Safety Board.
In the end, Boeing failed to find a root cause for the overheating lithium-ion batteries. Instead, the company devised a system that it said should make it impossible for a fire to start.
Boeing's new battery design involved encasing a redesigned power pack in a steel box. It packed the battery with different insulation, heat-resistant material and spacers. It added drainage holes to remove moisture and a venting system to remove any gases caused by overheating.
Boeing officials claim the fix is "comprehensive and permanent."
"I'd surely have felt a whole lot better about the fix if the Boeing people had learned what went wrong with the batteries in the first place," said Robert Mark, a commercial pilot and CEO of aviation communications firm CommAvia in Evanston, Ill. "In-flight fires probably worry pilots more than just about anything else, in a box or outside of a box."
Boeing developed retrofit kits that are being applied to Dreamliners around the world as aviation regulators approve the fix and lift their bans on the plane.
Boeing said it expected to resume deliveries early this month and finish retrofitting the 50 customer planes by mid-May.
The FAA, which technically is only responsible for United Airlines' six Dreamliners, pegged the cost of repairing the carrier's half-dozen jets at about $2.8 million. Relatively, that's not a huge cost. Boeing's revenues are near $70 billion.
Boeing might have invited scrutiny by boldly calling its new plane a "Dreamliner." Executives continually refer to it as a "game-changing" airplane.
"Boeing did a really good job of hyping the 787, and it became a very compelling business story," Harteveldt said.
In the industry and to aviation enthusiasts, the plane was remarkable because its fuselage and wings are made of composite materials instead of metal, prompting some to refer to it as a "plastic plane."
The lighter composites make the Dreamliner 20 percent more fuel-efficient -- a huge deal for airlines, whose biggest expense is jet fuel. Fuel efficiency also lets the jet fly farther, allowing carriers to use it on lengthy international routes instead of using jumbo jets, which they sometimes have trouble filling with passengers.
The composites also allowed the Dreamliner to have unusual passenger comforts, such as larger windows and the ability to adjust cabin pressure and humidity to more comfortable levels than in metal planes.
"It was held up as a way for business travelers, especially, to get between two destinations in a faster, more efficient, more pleasant way," Harteveldt said. "Batteries catching fire kind of puts a damper on all of that enthusiasm."
And the battery story had elements of intrigue, stemming from not only the stumbles of a much-hyped aircraft but the visuals -- images of a badly charred battery and of emergency slides deployed on a 787 in Japan after a battery melting incident.
"Part of it was simply the drama in how the problems unfolded," Harteveldt said. "It's the stuff of great TV news stories."
Last Wednesday, Boeing CEO Jim McNerney was in the company's Chicago headquarters fielding a barrage of questions about the Dreamliner from media and industry analysts in a conference call.
On the same day, some 2,000 miles away near Seattle, Boeing factories hummed with activity.
Given the Dreamliner crisis, could it really be business as usual in the Everett plant that makes the 787 and other models of large planes?
"Very much so," Eric Van Avery, a director of operations for final assembly, said as he climbed stairs to an elevated deck to show guests the wiring inside a section of giant fuselage in the factory near Paine Field.
During the 100-day scrutiny, the commercial airplane half of Boeing -- the other half is defense -- seemed to thrive. Boeing delivered 137 commercial airplanes in the first quarter of the year, the same as last year despite the lack of Dreamliner deliveries for most of the period.
Boeing has a backlog of more than 4,400 commercial plane orders, valued at a company record $324 billion.
In an email to employees last week, Ray Conner, president of the commercial airplane business for Boeing, noted that "at a time of unprecedented challenge" the company not only came up with a battery fix but raised the rate at which it produced its key 737 and 777 planes. "Today we close the books on a quarter that was at once demanding, exhausting -- and one of our finest hours," Conner wrote.
In a statement to the Chicago Tribune, Conner noted the company's multitasking ability.
"We continue to have hundreds of people out with our customers working to get the 787 in-service again, but at the same time, and throughout the last few months, we've continued our drive and momentum in all other parts of our business and operations," he said. "Our employees and suppliers have continued getting Boeing airplanes into the hands of our customers."
While the company devoted hundreds of thousands of hours to the battery fix, it mostly redirected engineers from other projects. Thus, it didn't incur much additional cost.
"We managed to absorb this," Smith, the CFO, said during the earnings call. "It was really a matter of priorities."
American Airlines officials say they have confidence in Boeing and in the Dreamliner. The airline has 42 firm orders for the 787 and options for 58 more. It is scheduled to take delivery of its first in late 2014.
"I would expect that, over time, we'll take all 100 of those airplanes," American CEO Tom Horton has said. "I think it's going to be a great airplane."
United Airlines and other carriers across the world have also expressed support for Boeing, although a few have been vocal about wanting compensation for planes grounded by the battery problem.
Boeing won't talk about what that compensation might entail. Boeing has no contractual obligation to compensate airlines, but McNerney said during the earnings call that "there are a few places where we'll work with our customers to ensure that the disruption doesn't hurt their results and their operation more than it needs to. And that'll be different with every customer."
Boeing was also able to absorb the costs of the problem batteries because it has business outside of commercial airlines. Boeing's defense, space and security business saw profits rise 12 percent in the first quarter, although sales dropped by 1 percent, reflecting the expected cuts in government defense spending.
As the FAA was preparing to officially lift its ban on the Dreamliner last week, airlines began to make their own plans for getting the 787 airborne again.
United said its plan is to resume 787 domestic flights and to launch an international route from Denver to Tokyo on June 10.
LOT, whose 787 was grounded at O'Hare during its inaugural round-trip flight Jan. 16, announced last week it has resumed selling tickets for Dreamliner flights from Chicago to Warsaw, starting June 5.
Japan-based All Nippon Airways, owner of the most Dreamliners, said it planned to begin test flights of 787s within days after the Japanese government on Friday approved the aircraft's return. Following testing and pilot retraining, ANA expects to have all 17 of its Dreamliners retrofitted with new battery designs by the end of May.
Going forward, the challenge for Boeing will be to help its airline customers convince the flying public that the 787 Dreamliner is safe to fly -- at least to fliers who even notice what type of aircraft they will be traveling on.
"I think airlines will have to do some clever public relations work," Harteveldt said. "But I think there's a lot of support out there for it, and people will be willing to give it another shot -- and airlines are very much looking forward to it."
- Boeing shows off faster 787 assembly line 5/9/13
- ANA readies fleet as Japan OKs 787 flights 4/26/13
- Boeing: Cause of 787 battery fires remains mystery 4/25/13
- FAA formally lifts Boeing 787 grounding 4/25/13
- NTSB explores the Boeing-FAA relationship 4/24/13
- Despite 787, Boeing 1Q earnings beat street 4/24/13
- At hearing, NTSB grills Boeing and FAA on 787s 4/23/13
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