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Dreamliner grounding could cost Boeing dearly

(Moneywatch) The grounding of the787 Dreamliner will cost Boeing (BA) at least $125 million a month -- and that's before the price of repairs. Even if the company finds and fixes the problems fast, it could be sometime before the FAA says it's OK for the planes to takeoff again.

Late yesterday the FAA ordered the grounding of all U.S. Dreamliners as a result of an emergency landing in Japan caused by the plane's battery. Problems with the batteries first surfaced last week when a fire broke out on a Dreamliner at Boston's Logan Airport. The orders affect all 50 of the planes Boeing has so far delivered to airlines.

"The battery failures resulted in release of flammable electrolytes, heat damage, and smoke on two Model 787 airplanes," the FAA said in an statement. "The root cause of these failures is currently under investigation. These conditions, if not corrected, could result in damage to critical systems and structures, and the potential for fire in the electrical compartment."

Poland's LOT airline today said it would seek compensation for the loss of the use of the airplane from Boeing and the other airlines -- Air India, ANA, Ethiopian Airlines, JAL, LAN Airlines, Qatar Airways, and United Airlines -- flying the 787 are expected to do the same. They will likely demand that the manufacturer reimburse lost earnings and financing costs, says airline industry analyst Robert Mann.

"In addition to the cash ownership costs, the airlines expected to earn (and likely were earning) a return in excess of their cost of capital employed in the 787, so, say the opportunity cost is $2.5 million per aircraft per month, likely to be borne by (or pushed onto) the manufacturer," says Mann, head of R.W. Mann & Co. "So for an already delivered fleet of 50, call it $125 million."

Along with these costs Boeing will also have to pay for reworking aircraft currently in production. The company had hoped to deliver eight planes a month which would have brought in $200 million per month.

Boeing may have to bear these costs for quite some time. The FAA said that, "In addition to the continuing review of the aircraft's design, manufacture and assembly, the agency also will validate that 787 batteries and the battery system on the aircraft are in compliance with the special condition the agency issued as part of the aircraft's certification."

However, the importance of the Dreamliner may light a fire under the FAA's inspectors, says Michael Derchin, an an analyst with CRT Capital Group: "In this case I think it will be fast because of how important this is to the whole aviation industry. I don't think we're going to see the usual regulatory issues around this."

Meanwhile, other nations are unlikely to approve the Dreamliner for flight while the U.S. review is underway.

Boeing may have other financial problems if the fixes change the 787's performance substantially. The company promised buyers the jet would be approximately 20 percent more fuel efficient than other planes in its class. If repairs add substantial weight -- the lithium ion batteries may have to be replaced with nickel hydride units weighing twice as much -- the airlines may not be willing to pay as much for the Dreamliner.

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