Lengthy Dreamliner 787 probe, fixing problem, may cost Boeing dear

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The slow progress of investigations into battery problems on Boeing Co's 787 Dreamliner jets suggest the new plane could be grounded for months, raising fears that the financial hit to Boeing will be greater than had been initially predicted. (AP) The slow progress of investigations into battery problems on Boeing Co's 787 Dreamliner jets suggest the new plane could be grounded for months, raising fears that the financial hit to Boeing will be greater than had been initially predicted. (AP)
SummaryThe slow progress of investigations into battery problems on Boeing Co's 787 Dreamliner jets suggest the new plane could be grounded for months, raising fears that the financial hit to Boeing will be greater than had been initially predicted.

in service, plus another 50 or so in production or waiting for delivery, Boeing will have to compensate carriers unable to use 787s as planned and pay penalties for late deliveries, most likely in the form of discounts on future purchases.

It also is not clear whether any fix - particularly if the probes lead to the identification of a major design fault - would also be costly.

At the same time, it will be starved of the cash it was expecting for delivering 787s it is still producing at the current rate of five per month, which could add up to $300 million per month, analysts estimate.

And the longer the planes are grounded, the more Boeing is exposed, as airlines may start to reconsider orders and - in extreme cases - cancel some, especially if the battery fix adds weight to the plane and reduces its vaunted fuel efficiency.

Boeing, which is expected to report a drop in fourth-quarter earnings next Wednesday, is not talking specifically about costs of the 787 issue yet.

"It's too early to know the financial effects," said Boeing spokesman Charles Bickers. "We're focused on working through the process, getting to a resolution and returning the airplanes to service."

Douglas Harned, an analyst at Bernstein Research, puts the cost of a fix at no more than $350 million, or about 30 cents per Boeing share, in a worst-case scenario. Howard Rubel at Jefferies estimates the cost at somewhere between $250 million to $625 million, but notes that some of the cost may be borne by suppliers.

"There's still the hope of a relatively easy fix followed by a return to service within a week or two, but there's also the strong and growing risk that they'll need to redesign the battery system, which could mean another six to nine months," said Richard Aboulafia, an analyst at aerospace research firm Teal Group.

PRODUCTION DELAY LOOMS

More important is the effect on Boeing's production rate, which is scheduled to jump to 10 a month by the end of this year, from five now.

That jump is crucial to Boeing's plans to eventually make a profit on the 787. Most of the investment in a new plane occurs early in the program, which means earlier planes cost more to build than later ones.

The quicker Boeing can refine the process and ramp up numbers of planes produced, the quicker it will reach the target of 1,100 planes, where

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