Dreamliner scare threat to Japanese suppliers
2013-01-16 13:24
Tokyo -The grounding of two Dreamliner fleets Wednesday not only dents the US giant's reputation but also threatens to deal a blow to Japanese firms that make around a third of the aircraft, analysts said.
Japan Airlines and All Nippon Airways halted all flights on the next-generation plane after an ANA domestic flight bound for Tokyo made an emergency landing when cockpit instruments showed smoke in an electrical bay.
The incident, the latest in a spate over the last 10 days that have triggered safety probes in the US and Japan, are a headache for the Japanese carriers which have bet heavily on the 787 Dreamliner, between them ordering 111 units.
But with Tokyo having pushed hard for Japanese suppliers to be part of the manufacturing process, the setback also presents problems for companies that make everything from batteries to wing flaps for the high-tech plane.
On Wednesday, traders fled from industrial behemoths like composite fibre-maker Toray and wing-supplier Mitsubishi Heavy Industries.
"We should watch to see if this affects the broader Japanese economy as so many companies supply parts to the 787," said Waseda University professor Hajime Tozaki, an expert on aviation policy.
Tozaki said the Japanese government had actively pushed domestic firms to supply the new aircraft as "a national project".
Market players had a whole trading day to digest news of the emergency landing -- the seventh setback for the Dreamliner in a little over a week -- which occurred shortly after the Tokyo bourse opened.
It was not until late in the session that carriers including ANA, Korean Air, Qantas's budget carrier Jetstar and Singapore Airlines' offshoot Scoot began publicly backing Boeing's centrepiece offering and pledging to keep orders intact.
By the close Toray had tumbled 4.13 percent to 510 yen, Mitsubishi Heavy fell 3.23 percent to 478 yen and battery maker GS Yuasa plunged 4.46 percent to 321 yen. Fuji Heavy was off 2.87 percent to 1,150 yen.
The drops outpaced a broader market decline - the Nikkei 225 index was down 2.56 percent on the day.
But while markets quickly reacted to the news, the glitches were unlikely to create a long-term problem for Japanese suppliers "unless a serious flaw is discovered", Tozaki said, adding that Boeing rival Airbus had previously seen "minor problems" with its own new aircraft.
Masaharu Hirokane, analyst at Nomura Securities, said that "if authorities conclude these issues come from a fundamental problem, that would stop operation of the new airplanes".
"But if the Dreamliner has to replace its lithium-ion batteries with those of the older version, for example, that would take just a few months," Hirokane said.
That is a key issue for ANA and Japan Airlines since major repairs would mean grounding their Dreamliner fleets - ANA currently operates 17, while JAL has seven - for an extended period, hitting customer traffic and taking a bite out of earnings, analysts said.
"That would have a really grave impact because both JAL and ANA plan to put the aircraft into their European and American routes to compete with low cost carriers," said Tozaki.
The impact on the carriers' share price was limited with ANA down 1.62 percent at 182 yen in Tokyo while JAL was up 1.80 percent to 3,675 yen.
Boeing shares had closed up 0.51 percent to $76.94 on Tuesday in New York, before news of the latest safety scare.
For the aircraft maker itself, Shukor Yusof, aviation analyst with Standard and Poor's Equity Research in Singapore, said that while glitches were not unusual with new planes, the problems were "very embarrassing" for Boeing.
"This is an aircraft that was delayed for nearly three years, so potential customers will naturally question the safety part of the aircraft." he said.
