Boeing: How The 787 Grounding Could Affect Its Prospects

by Shreyas Tonse
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Submitted by Shreyas Tonse as part of our contributors program.

The Boeing 787 Dreamliner, crown jewel of Boeing’s assortment, has recently seen a lot of turbulent times with several airlines grounding their Dreamliner fleet. This move has been prompted by repeated operational problems faced in the first year of service of the airplane which Boeing claimed as being the company’s most fuel efficient airliner. Investigators are still unable to clearly pinpoint the root cause of the electrical problems triggered by the lithium ion batteries used in the airplane that have led to 2 separate incidents over the past month. Several operators have grounded their 787 fleet.

Carriers such as All Nippon Airways, Japan Airlines, Ethiopian Airlines, Air India, Qatar Airways, United Airlines had the Dreamliner in service when the incidents were reported. Some of these and others had placed orders with Boeing for the Dreamliner in order to expand their fleet. Boeing had issued an optimistic revenue forecast on 30th January 2013 for the year based on the assumption that there would not be any significant financial impacts of the regulators’ grounding of its 787 fleet.

Possible Effects of the Grounding

For the carriers that currently have the 787 in service, or those planning to induct these into their fleet, this issue has created a burgeoning problem. While some of them are already losing out on revenues, others such as Scoot Pte, the budget carrier owned by Singapore airlines has categorically commented that their growth hinges on the delivery of the Dreamliners.

If Boeing cannot fix the problem soon and is not able to get the nod from the regulators, it is likely that these carriers would lose patience and ask for replacements, in turn putting pressure on the company to deliver under tight timelines. All Nippon (ANA) is already negotiating with Boeing to push them higher on the waitlist of deliveries of its 777 planes. Of the total 848 orders made thus far, some of the carriers would renegotiate and opt for other planes or might even consider shifting over to Airbus. Through December 2012, Boeing was able to deliver 49 of these orders.

It is also likely that if the extended grounding continues, carriers would ask Boeing for compensation, further denting the bottom line for Boeing. As Boeing has yet to determine the fix required to put these planes back into service, the time and resources required for this exercise would make Boeing sweat over its future prospects.

Boeing, however, is optimistic about the fact that it has the technical acumen to put a fix in place at the earliest as voiced in an official statement released on their website.

Currently, the commercial planes segment accounts for around 52% of the stock price for Boeing according to Trefis estimates. If Boeing is not able to get a clean from regulators soon, the outlook for this segment could trend lower.

However, in the airline industry such setbacks and delays are quite frequent and Boeing’s competitor, Airbus also saw similar teething problems during the launch of its A380 aircraft.

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