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Grounded

Boeing under new pressure as Japanese airlines ground Dreamliners

Boeing shares may be in for some turbulence. After a raft of scary safety issues with the US company’s 787 Dreamliner, Japan’s All Nippon Airways (ANA) has grounded its 17-strong fleet of the new planes, and Japan Airlines subsequently did the same with its fleet of seven. Earlier today, one of ANA’s Dreamliners made an emergency landing after passengers reported seeing smoke.

This is a huge embarrassment for Boeing. ANA was the first airline to send a Dreamliner into the skies on a commercial flight, in a hyped event involving many of the aviation industry’s senior analysts and journalists. It came after years of setbacks and delays with the Dreamliner, which the company has marketed as the most revolutionary step in air travel since Concorde: an aircraft that is light and fuel-efficient while also offering passengers high levels of comfort.

A few days ago the US aviation regulator started reviewing the design, manufacturing and assembly of the Dreamliner, after Japanese authorities said they would conduct an inquiry following fuel leaks on a different 787 operated by Japan Airlines. On Jan. 8, Japan Airlines reported that a fire broke out on a 787 shortly after it landed in Boston. Boeing has said it is confident the design of the 787 is robust and that it is a “safe and efficient airplane”.

The company has a lot staked on selling Dreamliners. It has a backlog of almost 800 orders for them. Though they are only a part of Boeing’s commercial aviation sales, which in turn supplied only a quarter of Boeing’s operating proft in the third quarter of 2012, there is no question that the massive Dreamliner order book supports Boeing’s market valuation. Stock analysts include the likely date and selling prices of the aircraft into their profit forecasts. And the numbers involved here are massive. When Boeing lost an order for 35 Dreamliners from Australia’s Qantas in 2011, it missed out on $35 billion of sales. Aviation analysts will today be frantically calculating how much the latest Dreamliner setback may cost Boeing, and the news is unlikely to be good.

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