Boeing’s leadership privately believes the government’s grounding of the company’s flagship 787 Dreamliner was an unnecessarily drastic step, but its defensive attitude isn’t sitting well with some customers and it risks alienating regulators.
“You’d be hard-pressed to find anyone at Boeing who believes the FAA should have grounded it,” said a former top executive, who asked for anonymity in speaking about his former colleagues. “They all believe the airplane is safe.”
But an executive in charge of fleet planning for a major airline that has 787s on order expressed astonishment that Boeing has seemed to minimize what he sees as potentially critical incidents.
“At no stage have they appeared to be open to admitting the seriousness of what’s happened,” the executive said. “They are basically still in denial.”
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Before ordering the first such grounding in more than three decades, the Federal Aviation Administration (FAA) first announced a sweeping 787 safety review when a battery caught fire on an empty Japan Airlines (JAL) 787 parked in Boston, shortly after 137 passengers and crew disembarked from a 12-hour flight.
Then just days after unveiling the review, an All Nippon Airways (ANA) 787 was forced to make an emergency landing in western Japan when a battery overheated and spewed hot chemicals and soot into the electronics bay.
The next day, the FAA followed Japanese airlines in grounding the Dreamliner, and regulators worldwide followed suit
Nonetheless, Boeing chief executive Jim McNerney, in a message to employees Friday, said “We have high confidence in the safety of the 787 and stand squarely behind its integrity.”
“We are working around the clock to support the FAA, our customers, and others in the investigations,” McNerney wrote.
Gordon Bethune, the former Boeing executive who left to run Continental Airlines — and who in that position bought the grounded Dreamliners now owned by United — is emphatic that the government overreached.
He criticized the decision to ground the plane, which was made by Secretary of Transportation Ray LaHood and FAA chief Michael Huerta.
“Neither of those two guys know the front end from the back of an airplane,” Bethune said.
“They jumped the gun, but that’s the product of a cover-your-ass administration,” he fumed. “It’s heavy-handed, draconian and way, way beyond what needs to be done to protect the public.”
”Obviously, (Boeing’s leaders) are disappointed in this overreaction,” Bethune said. “But it doesn’t help them to bitch, so they will never say anything publicly that could be disparaging to the government.”
“Don’t think they are making light of this,” Bethune added. “I’m sure they are chagrined as hell. But they are going to fix it.”
While many airline customers have publicly expressed confidence in Boeing, privately some have reservations.
On Friday, the fleet planning executive for a 787 customer airline looked at a photo of the burned-out battery taken from the ANA jet and said he feels “very uneasy” that Boeing minimized the in-flight threat.
Though apparently in that case there was no fire outside the battery, the charred mess visible inside after investigators opened it up was startling enough.
And he noted that when a fire had broken out a week earlier from a battery on a Japan Airlines 787 parked in Boston, Boeing’s public statements never used the word “fire.”
After the Boston fire, Boeing tried to narrow the scope of the FAA’s safety review, according to a person with knowledge of the situation.
And right up until the announcement that the planes were grounded following the in-flight ANA incident, Boeing argued to the FAA that passengers were never at risk.
A person with knowledge of the deliberations said Boeing maintained that safety controls had worked as designed on that flight to shut down the battery and prevent a fire.
Regulators were not persuaded.
Now Boeing is struggling to satisfy aviation authorities in both the U.S. and Japan with an interim fix that includes thorough one-time battery inspections and instructions to pilots to do specific preflight electrical system checks.
However, the release Friday by the Japan Transport Safety Board of the ANA battery photo, along with a public statement by Japan transport-ministry investigator Hideyo Kosugi that suggests the battery may have been overcharged, undermine the proposal for an interim fix.
Boeing Vice President Mike Sinnett, briefing reporters about the battery’s safety features last week, said the battery couldn’t overcharge because four independent control systems would shut off the power to the battery before anything that critical occurred.
Perhaps that system worked as intended. But investigators are still working on finding out and the burned-out state of the battery raises concern.
“Until they know what caused it, they can’t start finding a fix,” said the airline executive.
An interim solution of battery inspections “is a tough sell to the FAA and to the operators without knowing the root cause,” he added.
The impact of the grounding on Boeing’s business will depend on how long it takes to work out a fix and get the planes flying again.
If the planes are allowed back in the air within the next week or so, the long-term impact will be minimal, industry experts agree.
In that case, the cost to Boeing in financial terms will not be material, said two Wall Street analysts.
Doug Harned of Bernstein Research said it cost Airbus $350 million to fix the wing rib cracks discovered last year on its A380 superjumbo planes. Such a structural flaw is much harder to fix than a component like a battery that can be swapped out.
And even when an engine on a Qantas A380 exploded in flight, the total cost to engine maker Rolls-Royce to fix the problem and compensate Qantas was about $255 million.
“It’s hard to think of this as worse,” Harned said of the 787 battery problem. “The cost of fixing this will be much, much less.”
Rob Spingarn, of Credit Suisse, said a significant impact on Boeing will come only if the grounding is extended enough to affect production.
He projects 71 Dreamliner deliveries in 2013, bringing in about $7 billion in cash.
That’s real money. At this stage, Boeing is adamant that production will continue on schedule.
Contractually, Boeing will have to pay only for fixing the jets, and for retrofitting the fleet already built with any required changes.
That’s “peanuts,” said the airline executive, compared to what it’s costing the airlines to cancel their 787 flights and take care ofthe passengers booked on them.
But he said Boeing “takes a tough stance” on post-delivery compensation and likely won’t pay out much to the affected airlines.
The former Boeing executive agreed, saying that contracts with airline customers typically fence off all future liabilities — “no strings attached at the time of delivery.”
“Boeing draws a clear line,” he said.
Effect on airlines
United, the only U.S. customer with grounded 787s, won’t be harmed too much because it has a big fleet and can substitute 777s, said the former Boeing exec.
In addition, the grounding comes during the offseason for travel, so airlines generally have excess capacity.
Perhaps the most affected customer will be the Polish airline LOT, which on Wednesday flew its first 787 from Warsaw to Chicago and now can’t fly it back.
LOT is depending on revenue from 787 international flights to climb out of serious financial trouble.
“LOT is hanging by their teeth,” said the former Boeing executive. “It’s a huge blow. Whether they exist in a year depends on the 787.”
Bethune said he expects Boeing to negotiate some kind of compensation with individual airlines.
But he believes production will continue.
”It would be very premature to stop building airplanes,” said Bethune. “People are waiting for these airplanes.”
Adam Pilarski, industry analyst with consulting firm Avitas, said airlines have few alternatives to the 787 available anytime soon. That makes it unlikely that many orders will be canceled.
Airbus’s rival A350 won’t be available before 2016 at the earliest, and the A330 is sold out beyond 2014.
“The airlines that are to take the 787 in the next year or two are counting on this airplane,” said the former Boeing executive. “They have to stick it out.”
Indeed, the airline executive so critical of Boeing’s handling of the crisis, despite those misgivings, still needs the airplanes to increase his fleet’s efficiency.
“We definitely want them,” he said of the Dreamliners he has on order. “We remain very committed.”
He said everyone in the business hopes Boeing can find a way out of its mess quickly.
George Greene, a retired FAA chief scientific and technical adviser, said safety trumps everything at both the federal agency and at Boeing.
“Boeing has nothing to gain by not fixing this. If there’s a crash, everybody loses,” Greene said. “I’m positive they are pulling out all the stops to figure it out.”
Dominic Gates: 206-464-2963 or email@example.com