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Seeing Beyond Boeing's 787 Crisis
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As I anticipated in my post before the market opened this morning, Boeing shares have taken a drubbing following news of the grounding of all Japanese-owned 787s last night. Meanwhile shares of EADS, the company that makes Airbus planes, are modestly higher.

If anything, investors seem to be overreacting to Boeing’s problems. Certainly at a time when the general market has been remarkably buoyant, Boeing shares have been notable laggards. Measured from October 24 — around the time the 787 issues began to attract attention — EADS’s shares are up more than 25 percent, whereas Boeing’s are actually down slightly (from 74.95 to 74.52 as of this writing).

For those who want to see beyond Boeing’s present crisis, there are reasons to hope the worst is over — at least assuming no hitherto unnoticed problems surface in other aspects of the plane’s technology. The major issue as of now seems to be the plane’s lithium-ion batteries. These are actually made in Japan — by Yuasa — and it may be precisely because of their Japanese provenance that the Japanese airlines are taking a belt-and-suspenders approach. Certainly for optimists it is some consolation that United has not — so far at least — grounded its 787s. It is also noteworthy that — if a report in today’s Wall Street Journal is to believed — the Japanese grounding will be for just two days.

Assuming the plane’s initial problems lead to no disasters and that the battery issues can be overcome at no major cost, the upside of the 787 story is considerable. This is because in several respects the plane is a true technology leader. In particular its carbon fiber wings — made in Japan by Mitsubishi Heavy Industries with carbon fiber supplied by Toray — are clearly a fundamental breakthrough. Far lighter than conventional aluminum wings, they are the key to the fact that the plane’s seat-mile fuel costs are about 20 percent lower than those of conventional commercial jets. This promises huge savings over the more than 20 years that a typical plane is in service.

(Republished from Forbes by permission of author or representative)
• Category: Economics • Tags: Boeing 
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