New Dreamliner Fire Is a Potential Nightmare for Boeing

by Susan J. Aluise | July 12, 2013 2:41 pm

New Dreamliner Fire Is a Potential Nightmare for Boeing

Less than three months after Boeing’s (BA[1]) troubled 787 Dreamliner returned to service after back-to-back battery fires grounded the aircraft for 123 days, an Ethiopian Airlines 787 caught fire on the ground at London’s Heathrow International Airport on Friday.

No passengers were on board the jet at the time of the incident, which airport officials characterized as an “internal onboard fire.” Although no further details were immediately available, BA shares were off by as much as 7% at one point Friday, though the stock recovered some altitude by the afternoon.

While the data at this point support no conclusions as to what might have gone awry to cause Friday’s 787 fire, it minimally raises the specter of tougher attention from regulators.

On Jan. 16, the U.S. Federal Aviation Administration and EU regulators grounded all 787s in the wake of two serious incidents involving the Dreamliner’s lithium-ion batteries within the span of a week. In both cases, the failures caused flammable battery fluid to leak, triggering heavy smoke and heat damage in electrical compartments — and in one instance, a full-blown fire on an empty plane at Boston’s Logan Airport.

But BA engineered the solution, which involved insulating battery cells and building an apparatus capable of containing any fire and venting fumes outside the plane, before safety investigators had determined the precise cause of the incidents. The most pressing concern for Boeing in the wake of the London incident is the risk that regulators might conclude that the battery fix did not eliminate the fire risk.

If the FAA or other regulators suspect BA’s fix did not address the real problem, they could put all of the 787’s integrated systems — including the leading-edge electrical system — under the microscope. That scenario not only would be expensive to address, but could do permanent damage to the Dreamliner’s reputation.

Boeing already is facing increased competitive pressure from EADS (EADSY[2]) Airbus on its new A350 XWB, which made its maiden flight days before last month’s Paris Air Show. That jet — which is a competitor to both the Dreamliner and the mini-jumbo 777 — scrapped plans to use lithium-ion batteries after the Dreamliner was grounded. Airbus elected instead to avoid the controversy by using traditional nickel-cadmium battery technology.

Bottom Line: As I pointed out shortly after the Dreamliner was grounded, the onus was (and still is) on Boeing[3] to make sure that its solution solved the potential fire risk. The time-tested lesson of public perception is that the public is willing to forgive and forget — but only if you seize the day and solve the problem. It is in cases like the McDonnell Douglas DC-10, where things continued to go wrong, that patience and goodwill eventually run out — and eventually, the stock can sink right along with a company’s reputation.

BA is a solid company, the 787 is an innovative and extraordinary leap forward technologically, and the aircraft can have a valuable service life with the world’s airlines — but Boeing has to make a public commitment to nailing down these problems once and for all. Any discussion of “teething troubles” will be a hard sell right now.

Transparency is BA’s best weapon for turning a tough situation to its advantage — and helping its stock maintain altitude.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

Endnotes:
  1. BA: http://studio-5.financialcontent.com/investplace/quote?Symbol=BA
  2. EADSY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EADSY
  3. the onus was (and still is) on Boeing: http://investorplace.com/2013/02/dont-expect-a-quick-fix-for-dreamliner/

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