The Dreamliner: what’s next?

Euromonitor senior analyst Nadejda Popova gives an insight into the Dreamliner troubles.

"The Dreamliner is flying again after its suspension for four months by the regulatory authorities due to the overheating problem it experienced in early 2013 with its lithium-ion battery.

A number of airlines are resuming their commercial flights (ie Ethiopian Airlines, All Nippon Airways and United) following the modifications which Boeing introduced to the battery systems of its 787 aircraft to minimise the risk of overheating.

However, with many market players calling for compensation from Boeing, such as Qatar Airways, Air India, LOT and Japan Airlines among others, the time for negotiation is now looming.

Setbacks and negotiations
Although the Dreamliner is back in service, the setbacks with this aircraft are a far cry from over. Early in June 2013, glitches were identified with air pressure sensors on board Japan Airlines, while in May another fiasco took place during an All Nippon Airways’ test flight when an electric distribution panel overheated this being in addition to previous problems such as fuel leaks and brake malfunctions.

The grounding of the Dreamliner has hindered the reputation of the new aircraft, not just among key airlines but also among travellers.

It delayed expansion projects, led to the reshuffling of fleet utilisation and raised safety concerns about the new jet. Boeing also pointed out early in the year that the numerous tests aimed to identify the reasons for the overheating were unable to shed light on the cause of the problem which further aggravated the problem. Despite that fact, the aircraft maker retrofitted the battery in order to prevent a recurrence of the problem.

A number of airlines have been seriously affected by the grounding of the Dreamliner. Qatar Airways, for example, is set to seek compensation from the airplane maker of US$200 million for lost revenues, while Air India is asserting that the new passenger jet is not meeting the 20% fuel efficiency claimed by the maker.

What next?
Recent events will certainly impact the type of negotiations that take place between Boeing and its major Dreamliner clients. The strategy adopted by many airline operators will be largely based on the presumption that the more noise you make, the better the agreement to be reached with regard to any future orders or services that can boost fleet expansion.

For many airlines such as Air India, which has been beset by financial problems and tough competition, the Dreamliner was seen as a tool of transformation and aggressive growth. There is too much at stake for many carriers keen to boost their long-haul route networks and diversify their consumer base, which is why we do not expect hefty cancellations of future orders for the new aircraft despite airlines making noises about suing.

Even though the Dreamliner experienced significant turbulence early in the year due to its grounding, Boeing has been able to quickly resume deliveries of the jet in 2013 and thus maintain its financial robustness. Trade sources reveal that orders in June 2013 for Boeing 787 totalled 42, which is an indication of the determination of the aircraft maker to speed up production, retain momentum and improve cash flow.

The compensation claims are not expected to make a big dent in the pockets of the billion dollar profit aircraft maker, which in Q1 2013 recorded revenues of US$19 billion. This is mainly due to the fact that the confidential negotiations which are expected to take place will either lead to a spread of the cost of compensation over several years, thus minimising its impact, or take the form of reductions on any future orders."

For further insight, please contact Nadejda Popova Senior Analyst – Travel and Tourism, at [email protected]