News Column

Boeing May Have to Pay Up as Airlines Adjust to Dreamliner's Grounding

Jan. 18, 2013

Gregory Karp

Airlines that own the Boeing 787 Dreamliner scrambled to rearrange flights Thursday after regulators around the world grounded the plane for fear of more battery-related fires.

Meanwhile, industry experts considered the potential damages that Boeing Co. might owe airlines for delivering a plane they now cannot fly.

On Wednesday, a second major incident involving "a potential battery fire risk" prompted the Federal Aviation Administration to temporarily ground all 787s operated by U.S. carriers, which technically applied to the six operated by United Airlines because no other U.S. carrier has the plane yet. However, Dreamliners also were grounded in Japan, Europe, India and elsewhere.

The FAA gave no indication of how long the grounding will last, although experts said it could be days or weeks rather than months. The Dreamliner grounding was the first since the McDonnell Douglas DC-10 had its airworthiness certificate suspended following a deadly crash in Chicago in 1979, analysts said.

Boeing has sold about 850 of its new aircraft, with 50 delivered to date. About half of those have been in operation in Japan, but airlines in India, South America, Poland, Qatar and Ethiopia, as well as United Airlines in the United States, are also flying the 787, which has a list price of $207 million.

Boeing said in a statement it was confident the 787, a groundbreaking plane delayed for years by design and production problems, was safe, and it stood by the plane's integrity.

Some customers are restless.

Because of the groundings, LOT Polish Airlines scrapped its inaugural flight from O'Hare International Airport to Warsaw on Wednesday. LOT also canceled a welcoming ceremony that was to include Polish dignitaries and Mayor Rahm Emanuel when the Dreamliner arrived at O'Hare from Warsaw.

LOT officials said they would seek compensation from Boeing for having its two Dreamliners grounded. It will take delivery of the three additional Dreamliners it expects by March only if the problems are resolved, the airline said.

Last month, Qatar Airways Chief Executive Akbar Al Baker said he would seek compensation from Boeing after a 787 his airline owns was grounded. "We will demand compensation (from Boeing)," he said. "We are buying planes from them to use them, not to put in a museum."

United Airlines on Thursday would not say whether it would seek financial damages from Boeing, which is headquartered just blocks away in Chicago. However, the effect of taking six Dreamliners out of service, representing 10 flights per day, is slight, given the world's largest airline has 6,000 flights per day and regularly swaps aircraft for various operational reasons.

But American Airlines, which this week placed firm orders for 42 Dreamliners, pending U.S. Bankruptcy Court approval, said it was sticking to its plans.

"We are in constant dialogue with Boeing. We believe the 787 is a great aircraft," said Virasb Vahidi, chief commercial officer for American.

New planes often have warranties, similar to those of new cars bought by consumers, said Bob McKenzie, an attorney at Chicago law firm Arnstein & Lehr, who besides helping clients buy aircraft and resolve maintenance problems with sellers also is a commercial pilot and flight instructor.

"The airlines that bought these planes would be looking to repair these planes in a warranty fashion, like you would on a car," he said. It's unclear whether the FAA's grounding of the planes could affect such a warranty clause, he added.

Potential damages are hard to estimate because Boeing and regulators are still working on what fix might be required for the Dreamliner battery, which starts an onboard power generator.

Compensation could come in two forms. One is the direct cost to repair the planes and the other is for the loss of use of the planes, McKenzie said.

Compensation would likely start with a demand from the airlines, once they know the scope of the damages and how long planes are out of service, he said. Boeing can then reject the demand, make a counteroffer or "pay their demands, either because they think they have liability or for public relations reasons. Most of the time that's where it will get settled in these cases."

"I would think they'll try to make it right with the airlines," McKenzie said. "Nobody likes to litigate with their customers."

Keeping the 787s on the ground could cost All Nippon Airways alone more than $1.1 million a day, Mizuho Securities calculated, noting the Dreamliner was key to the airline's growth strategy.

Richard Aboulafia, vice president of analysis at the Teal Group, noted that any payments would be "more drops in a very big bucket," considering the compensation Boeing has already paid for delivering the plane more than three years late.

As far as Boeing's reputation, the problems so far "haven't damaged them too grievously," he said. "This will be remembered as yet another painful episode in the very difficult development process for what will ultimately be a very good jet."

Boeing shares closed Thursday at $75.26, up 1.2 percent.

Reuters contributed.



Source: (c)2013 Chicago Tribune Distributed by MCT Information Services


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