Boeing 787s grounded by two Japanese airlines

21 hrs.

Dhara Ranasinghe , CNBC.com

Japan's two leading airlines grounded their fleets of the Boeing?787 on Wednesday after one of the passenger jets made an emergency landing, an incident that follows a slew of problems in recent days with the?new aircraft that include fuel leaks, a battery fire, wiring problem and brake computer glitch.

The moves will make?Japan a test case for how customers of aircraft manufacturer Boeing respond to safety concerns surrounding the Dreamliner 787, the pride of Boeing's passenger jet fleet, airline industry watchers said.

Japan Airlines (JAL) and All Nippon Airways (ANA) operate about half of the 50 new Dreamliners so far delivered by Boeing and focus is firmly on Japan and what steps Boeing takes there to allay safety concerns.

"The most number of 787s in service are in Japan right now, therefore that is a big market for Boeing. A lot of the existing Boeing customers will be looking to see what action is taken in Japan in particular before they decide what action they are going to take with their orders," said Siva Govindasamy, Asia managing editor at Flightglobal, an industry news service.

"You can be pretty sure that 1-2 of those customers are already in talks with Boeing to see what is going on and to rectify any issues before they get their aircraft. That's going to be very crucial right now, so the onus is on Boeing to take action," he said.

ANA said on Wednesday it was grounding all 17 of its 787 fleet, while JAL said it was suspending all flights scheduled for departure for the day.

"It's quite obvious that airlines in Japan have a close link with the manufacturers in the U.S., namely Boeing. That's why all the new airplane orders from Japan are all from Boeing and not Airbus," said CLSA analyst Paul Wan, referring to the European aircraft manufacturer.

"So if they (the Japanese carriers) are going to balance their order books a little bit, it could mean that they consider the French manufacturer instead and that would mean a business opportunity for Airbus," Wan added.

So far there are some positive signs for Boeing. India's aviation regulator said on Wednesday that it would decide whether or not to ground the Dreamliner jets only after Boeing submitted its safety report. State owned Air India has six Dreamliners in its fleet. While Australian carrier Qantas said its orders for 15 Boeing Dreamliner remain on track.

United Airlines said it has inspected its 787 fleet and all of them are flying as scheduled.

"Airlines will put pressure on Boeing. The airlines are going to be telling Boeing, right it's your job to go out and prove that these aircraft are safe to fly," said Govindasamy.

A senior Boeing engineer said last week that the plane maker had confidence in the Dreamliner despite recent mishaps that included a battery fire.

Still, industry watchers urged Boeing to take no risks with the Dreamliner and to take more steps straight away to assuage the safety concerns.

"This problem (with the Dreamliner) looks to be systemic, it looks to be recurring. In that respect, my view is ?.that they should consider grounding the entire Dreamliner fleet, not only limited to Japan but globally," Jonathan Galaviz, managing director & chief economist at Galaviz & Company told CNBC'S "Capital Connection."

Japanese airline shares came under pressure on Wednesday, with ANA shares tumbling 1.62 percent, while the shares of Japanese suppliers to Boeing suffering greater falls.

Analysts expected further weakness for airline stocks but added that the sector was likely to recover in the long-run.

"Incidents like today's (Wednesday's) one will be negative for the (Japanese airline) share prices and the grounding of aircraft could have a mild impact on fourth-quarter earnings," said CLSA's Wan.

"From a long-term perspective, I don't think today's (Wednesday's) incident will be a long-term negative for Japanese airlines because historically these kinds of issues tend to resolve themselves in a pretty timely manner, otherwise from a manufacturers' standpoint they are going to lose a lot of business," he added.

Shares of Boeing, listed in New York, had a volatile ride last week and would be in focus when trading starts later on Wednesday. They could bear the brunt of the fallout from the grounding of the Dreamliner jets in Japan.?

"The long-term projections and the long-term viability of the Dreamliner and its demand from the airline sector are very strong, so Boeing is in a very strong position," Galaviz said.

"The investment community needs to be prepared for possible short-term damage related to perhaps a slowing down of demand in manufacturing...the capacity of Boeing to make sure that quality control and systems designs are going in the right way," he added. "So there could be some short-term impact if they decide to take a safer approach which I would highly advocate."

Source: http://www.nbcnews.com/business/boeing-787-makes-emergency-landing-1B7991426

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