Is Boeing's Dreamliner the New Chevy Volt?

Having an entire fleet of planes grounded would represent a horrible public relations nightmare for Boeing (NYSE: BA  ) , but after two battery failures on its new 787 Dreamliner, that's exactly the scenario the aircraft maker is waking up to.

The FAA has ordered United Continental (NYSE: UAL  ) to ground the six Dreamliners operated by United Airlines -- it's the only U.S airline with 787s -- and Japan ordered its two largest airlines to taxi off the runway all 22 Dreamliners they fly. India followed suit by ordering Air India to ground its six 787s, and the European Aviation Safety Agency did the same for all European carriers. So what's really left? And who'd want to put a Dreamliner in the air now, anyway, and risk a catastrophe and massive lawsuits for unnecessarily endangering lives?

With all the delays and problems Boeing encountered during the initial build of the aircraft, the Dreamliner may become the Chevy Volt of airplanes.

When you're hot, you're hot
The most recent crisis began on Jan. 7, when a Japan Airlines maintenance worker discovered an electrical fire aboard an empty 787. Then, yesterday morning, All Nippon Airways was forced to make an emergency landing with 129 people on board after a battery alarm was activated, and passengers reported smelling smoke. An investigation quickly discovered that flammable battery fluid had leaked from the plane's main lithium-ion battery with burn marks found around the damaged area.

Although the situations are dissimilar, it's hard not to compare it the public relations setback General Motors (NYSE: GM  ) suffered after several lithium-ion battery fires were reported following government crash tests involving its Chevy Volt. Several fires involving luxury Fisker Karmas followed, with the problem traced back to the lithium-ion batteries made by A123 Systems . The battery maker eventually recalled its entire run of batteries at a cost of $55 million, before declaring bankruptcy.

Tesla Motors (NASDAQ: TSLA  ) and Nissan both have not had any battery fires reported, but Tesla's Roadsters have suffered battery failures that turn the cars into the equivalent of driveway art  -- the car is immobilized as the wheels lock and it costs $40,000 to have the battery pack replaced -- and the Nissan Leaf's batteries lose charging capacity over time.

Of course, one big difference between the carmakers and Boeing is that electric cars are unlikely to cause mass carnage in the event of a failure, whereas a Dreamliner falling out of the sky could kill hundreds.

On a wing and a prayer
If the aircraft maker wants to live to fly another day, it needs to move swiftly to identify the issue and resolve it: with 50 Dreamliners already delivered, there are orders for 800 more that have been booked. There's no timetable given by the FAA for when the grounding order will be lifted, so Boeing's got to get it right. It won't do to come out of the hangar only to have to return because the problem crops up again. Still, since the Dreamliner took its first flight in 2011, there have been a string of problems pop up: cockpit windshield cracks, fuel leaks, oil leaks, and cracked engines .

The benefit of the aircraft for airlines is its fuel efficiency, of which the batteries comprise a large part. If they're unfixable by their manufacturer Yuasa, and Boeing has to resort to more traditional NiCad or lead-acid batteries, it will lose a lot of that efficiency, and the reason for its popularity. No airlines have canceled an order yet, and American Airlines parent AMR says it's still intent on buying dozens of Dreamliners for its new air fleet. But Poland's LOT Airlines says it won't accept any of the three Dreamliners it's scheduled to take until the problems have been resolved. It also wants compensation from Boeing for having to ground the two it already has . India's Civil Aviation authority is reviewing the situation.

General Motors loses tens of thousands of dollars on every Volt it sells and has to resort to cut-rate financing to move the electric cars off the parking lot. Unless Boeing gets this issue behind it, it's going to be in an even worse position than the carmaker, because there won't be any amount of discounting it can offer that will move the Dreamliner off the runway.

With great opportunity comes great responsibility. For Boeing, which operates as a major player in a multi-trillion dollar market, the opportunity is absolutely massive. However, the company's execution problems and emerging competitors have investors wondering whether Boeing will live up to its shareholder responsibilities. In this premium research report, two of the Fool's best industrial industry minds have collaborated to provide investors with the key, must-know issues around Boeing. They'll be updating the report as key news hits, so make sure to claim a copy today by clicking here now.


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  • Report this Comment On January 29, 2013, at 11:46 AM, apeweek wrote:

    A few of the errors in this article:

    The author refers to "...several lithium-ion battery fires were reported following government crash tests involving its Chevy Volt."

    There was in fact only one such fire, three weeks delayed, resulting from a crash test and upside-down rotation. Another fire was induced in a battery outside of a vehicle in an attempt to recreate the circumstances of the fire. This second fire was not in a Volt, nor did it result from a crash test. A subsequent NHTSA probe found no actual safety flaw, and in fact Volt earns 5-stars for safety from NHTSA and IIHS.

    Next, the author says: "...Several fires involving luxury Fisker Karmas followed, with the problem traced back to the lithium-ion batteries made by A123 Systems. The battery maker eventually recalled its entire run of batteries..."

    The fire problem in the Karmas was in fact traced to the gas engine compartment (Karma is a hybrid.) The lithium batteries were not the cause of these fires, nor were they even damaged. The A123 battery recall related to the embedded cooling system, not the battery cells themselves. This recall did not result from any battery accident, plus it preceded the fire issue, it did not follow in any way from it.

    Next, the author says: "...General Motors loses tens of thousands of dollars on every Volt it sells".

    The only speculation of this nature that I am aware of came from a widely debunked Reuters article. Readers of MF I assume are smart enough to realize that you don't calculate your return on investment by dividing up all your fixed costs over just a single year's worth of product run.

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