The Federal Aviation Administration (FAA) on February 12, approved Boeing‘s (NYSE:BA) plan to test and certify modifications proposed to 787’s battery system. With this, the aircraft manufacturer has come a step closer to returning 787Dreamliners to commercial service. However, the customers (airlines) of this airplane will want to be assured that these modifications address all safety issues – Boeing insists that this is precisely what it aims to establish through this test and certification process.
Earlier this year on January 16, the 49 Boeing 787s in service worldwide were grounded by FAA and regulatory authorities of other countries after a battery short circuit started a fire in a parked 787 at Boston Airport, and smoke from a battery on another 787 forced an emergency landing in Japan. If the proposed battery modifications successfully pass the test and get certified, then the next step for Boeing will be to introduce these changes on the in-service 787s and then incorporate them in its own production line.
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Cost Impact From Grounding Of 787s
At this time, it is not possible to predict the time frame in which the 787s will return to service. However, they are unlikely to return before end-March as several stages of testing, certification and an eventual approval from FAA will take time. In the meantime, the first quarter earnings of Boeing will get impacted from lower deliveries of 787. The company had delivered only three 787s in January, prior to FAA’s grounding order. In comparison, it had delivered 23 of these planes in the fourth quarter of 2012. 
Boeing on its part, is confident that its battery modifications will get certified and approved. Accordingly, it is going ahead with the planned production rate hike for the 787s – from five airplanes per month at present to 10 airplanes per month by end 2013.  At a recent aviation conference, Boeing Commercial Airplanes CEO, Ray Conner, said that part of Boeing’s 787 supply chain had already reached supply levels commensurate with a production rate of seven airplanes per month. 
With regard to the cost impact from this issue, the company has not conveyed any figures, but we anticipate it will need to pay significant damages to customers of 787s, as they had to cancel several hundred flights due to non-usability of these planes.
Boeing Confident Of New Battery Modifications
In February, Airbus – Boeing’s principal competitor, announced that it will use the traditional Nickel-Cadmium batteries and not Li-ion batteries (which are used on Boeing 787) on its A350, which is currently under development. Airbus will introduce the A350 in service in mid 2014, to compete with Boeing 787 and 777. We believe Airbus’ decision to use Nickel-Cadmium batteries is prudent.
Boeing on the other hand, is sticking to Li-ion batteries as it is confident that the proposed modifications to this battery system will address all safety issues in entirety. Also, we estimate that modifications to the existing Li-ion batteries will allow 787s to get back to commercial service faster, compared to the time it would take to introduce a completely new battery system (Nickel-Cadmium) on the 787.
The battery modifications proposed by Boeing are three fold. First, the company will introduce design changes like the addition of insulation materials to prevent cells from overheating. Second, it will introduce enhanced production and testing procedures like more stringent screening of battery cells to prevent potential short circuits that could lead to fires. And third, it will introduce an enclosure for the battery that will prevent any fire from spreading.Notes:
- Boeing’s fourth quarter 2012 deliveries, January 2 2013, www.boeing.com [↩]
- Boeing says strong demand pushing commercial production rates higher, March 11 2013, www.boeing.com [↩]
- Boeing Commercial Airplanes CEO Conner to speak at JP Morgan conference, February 26 2013, www.boeing.com [↩]