How the Dreamliner grounding will affect Boeing

The Boeing 787 Dreamliner is Boeing's flagship product - not just for the present, but for the next 15 years. The aircraft maker is estimated to have invested over $32 billion to develop the aircraft. In designing the plane, it has set new standards for passenger jets - the Dreamliner is the most fuel-efficient plane in the world thanks to the extensive use of light-weight composite material, a better aerodynamic design and other path-breaking features. One such feature is its now-controversial lithium-ion batteries, which have never been used in a plane before. They are similar to the lithium-ion batteries used in phones, but bigger, weighing about 63 pounds (28.5 kg).

After the Dreamliner, which comes with a price tag of $207 million, entered service late in 2011, Boeing's fortunes revived. Profits soared and the Chicago-headquartered plane-maker overtook rival Airbus in jet deliveries. Until the recent grounding, 50 Dreamliners were in service and had flown over one million passengers without any fatal accident. The company has over 800 confirmed orders from airlines around the world and had announced plans to double production from the current level of five aircraft a day to 10 by the end of the year.

Just when everyone thought Boeing had overcome multiple setbacks, including a three-year delay and production hassles, crisis struck. Between early December and mid-January, a series of problems in planes purchased by four of its seven customers raised safety concerns. These included mechanical failures, battery problems, electrical fires, fuel leaks, brake problems and cracks in the windscreen.

Things came to a head on January 16, when a Dreamliner operated by All Nippon Airways made an emergency landing in Japan after an alarm went off due to an overheating battery. Immediately, regulators around the world ordered the aircraft to be grounded.

Boeing must now demonstrate that its lithium-ion batteries are safe before the Dreamliners can take off again.

The best-case scenario for the company is a conclusion that attributes the problems to a batch of poorly produced batteries. If that is indeed the case, the Dreamliners will be in the air a few days after a detailed check on the batteries and other additional pre-flight checks. But if the investigators seek a change in the battery's design or a shift to the older nickel-cadmium batteries, Boeing's fortunes will take a hit. In that event, the Dreamliners will remain grounded for weeks.

Airlines, of course, will incur losses from the grounding. Experts say that Boeing will have to compensate airlines, depending on the terms of the purchase contract, and this bill could run to millions of dollars. That apart, a possible redesign of the battery, if sought, could cost hundreds of millions dollars as it may impact other systems as well. Still, Boeing, with revenues of $80 billion and a cash holding of $11 billion, can easily weather this storm financially, say experts.

"Teething problems are common in development of such advanced aircraft. But they are not insurmountable - Boeing will overcome them," says Air Marshal (retd) B.K. Pandey, an aviation expert. So far, there has not been any cancellation of Dreamliner orders as most airlines expect Boeing to sort out the problem.

But another threat looms in the form of the Airbus A350 XWB, touted as Airbus's response to the Dreamliner, which is set to enter service in 2014. The European aircraft maker already has 561 orders for the plane.

So, Boeing needs to act fast to reassure flyers, retain existing customers and win new ones.