787 to cost Boeing $6bn in cash-UBS; more on lithium-ion batteries
Update, 7:30am PST: Headline: DJ Boeing 787 Probe Results ‘Probably Weeks Away’ -NTSB Chief
We’re trying to track this down, which we received in an email. (We don’t get Dow Jones.) This seems to us like good news–”weeks” instead of “months”–but we caution about reading too much into this until we get the context.
Update, 7:50am PST: AP has this brief report. “Weeks” instead of “months” does seem encouraging but this sounds like a statement of facts rather than any hint at a breakthrough.
Here is a story from the Christian Science Monitor yesterday on the batteries.
787 to cost $6bn in cash: So forecasts UBS Securities in a research note today, and this doesn’t really consider the Boeing 787 grounding yet. Writes UBS:
- See 787 as $6B cash drag in 2013: Even assuming a relatively quick solution to battery issue, we still see 787 as a worse cash drag in 2013. We estimate 787 is a ~$6B cash drag in 2013 with ~$7B inventory build more than offsetting ~$1B advance draw assuming Boeing learns like it did on 777. Our forecast is worse compared to Boeing’s outlook for a similar 787 inventory build in 2013 as in 2012 ($5.7B) while extended 787 grounding would result in an even bigger cash burn.
- Cash drag could be worse if battery issue lingers: As long as 787 remains grounded, Boeing is faced with the choice of either slowing production or building physical inventory. It will build inventory for now and we see risk to its $4B+ FCF [free cash flow] guidance on this. Boeing plans to deliver 60+ 787s this year, while we estimate every missed delivery adds $100-120M to our baseline forecast for a $6B 787 cash burn.
Retrospective: Here is the press release from 2005 announcing the selection of lithium-ion batteries for the 787.
Boeing presentation about lithium-ion batteries: In November 2012, a Boeing official made this presentation about these batteries in the context of transporting them in cargo holds.
Among the information on the slides:
Energetic failures (fire and/or explosion) of lithium type cells can occur for a number of reasons including:
- Poor cell design (electrochemical or mechanical)
- Cell manufacturing flaws
- External abuse of cells (thermal, mechanical, or electrical)
- Poor battery pack design or application
- Poor protection electronics design or manufacture
- Poor charger/system design or manufacture resulting in Overcharging of battery
Independent Study: We’ve now linked Airbus and Boeing presentations about lithium-ion batteries. Here is an independent study–all 126 pages of it–about the topic. This is not about aircraft batteries but the principals are the same.