UPDATE 1-U.S. regulator raises prospect of longer delay for Boeing 787

Thu Feb 7, 2013 3:16pm EST

* NTSB pinpoints short circuit in single cell

* Investigators looking at total design of battery

* Battery certification process to be reconsidered

* Investors underestimating delays: analysts

By Jim Wolf and Alwyn Scott

WASHINGTON/NEW YORK, Feb 7 (Reuters) - Regulators need to rethink how they approved the batteries on the Boeing Co 787, a top U.S. safety official said on Thursday, adding a new and potentially time-consuming wrinkle to the plane's grounding.

National Transportation Safety Board head Deborah Hersman said regulators must review the "special conditions" used in approving lithium-ion battery technology on the 787 Dreamliners, after two battery related safety incidents in a matter of days.

The 50 Dreamliners in service were grounded worldwide on Jan. 16, after a series of battery incidents, including a fire on a parked 787 in Boston and an in-flight problem on another plane in Japan. The groundings have cost airlines tens of millions of dollars, with no end in sight.

"There have now been two battery events resulting in smoke, less than two weeks apart, on two different aircraft," Hersman said. "The assumptions used to certify the battery must be reconsidered," she added.

Boeing investors took the news in stride, pushing shares higher on the day. Analysts said the market was focusing on the wrong issue: the short-term question of fixing the battery versus the longer-term prospect the whole battery system might need to be approved again.

If the battery needs to be re-certified, "you're talking about changes to the 50 they've delivered, significant amount of engineering commitment on the 787-9. I see this as still having a significant amount of question marks," said Ken Herbert, an analyst at Imperial Capital in San Francisco.

Boeing shares are 3 percent higher since the 787 was grounded on Jan. 16, despite the headaches it has caused the planemaker and the demands for compensation.

Since finished 787s are piling up undelivered, and Boeing customers are already agitating for compensation, that could complicate Boeing's assumption the grounding would not significantly affect it financially this year.

"The market is focusing on the battery short circuit, which implies a simple fix," said Carter Leake, analyst at BB&T Capital Markets. "But they're missing the much bigger issue, which is the questioning of the certification process. Hersman is basically saying we're questioning the original certification altogether."

TIME TO RECONSIDER

The NTSB's Hersman mentioned nine so-called special conditions the FAA set in 2007 in approving Boeing's use of the battery, and its plan to allow the battery to burn itself out if it caught fire, because the risk was considered extremely remote.

Boeing's certification tests put the chances of smoke from a 787 battery at one in every 10 million flight hours.

"The 787 fleet has accumulated less than 100,000 flight hours yet there have now been two battery events resulting in smoke, less than two weeks apart, on two different aircraft," Hersman said.

The special conditions and the design assumptions are part of a broad review that the FAA launched last month, before the second battery incident. Hersman said the NTSB was not yet making any further recommendations.

Hersman also said on Thursday that the NTSB has isolated the source of a Jan. 7 battery fire in Boston to a single one of the battery's eight cells, but still has not found the actual root cause of the fire.

The NTSB plans to issue an interim factual report in 30 days, though the decision on returning the plane to regular flight rests with the Federal Aviation Administration.

In a joint statement, Transportation Secretary Ray LaHood and FAA Administrator Michael Huerta reiterated that the FAA's comprehensive review was ongoing.

"We must finish this work before reaching conclusions about what changes or improvements the FAA should make going forward. The leading experts in this field are working to understand what happened and how we can safely get these aircraft back into service," they said.

In the meantime, analysts have expressed concerns about a build-up of inventory, soaking up several billion dollars of cash, as Boeing continues to produce the 787 without making deliveries.

"For Boeing, it is encouraging to see that there has been concrete progress in the investigation but the (NTSB's) point that there is still a long road ahead ultimately appears more important," said Nick Cunningham, aerospace analyst at UK-based Agency Partners, an independent research firm.

'TEST' FLIGHT

As Hersman was addressing the news conference in Washington DC, the first 787 flight since mid-January left Texas for Washington state, a so-called ferry flight with no commercial passengers and a minimum crew to see if any battery problems crop up.

According to flight tracking website FlightAware, it left Dallas at 9:25 a.m. CST (1525 GMT) for the nearly three-and-a-half hour flight to Everett, Washington. The website indicated that it landed at 10:49 a.m. PST (1849 GMT). A Reuters reporter at the airport said the plane had no visible issues.

Ultimately scheduled for delivery to China Southern Airlines , the aircraft has not yet been handed over to the customer.

The Federal Aviation Administration on Wednesday approved the flight, which differed from Boeing's request to run a series of test flights. It placed a number of conditions on the one-off trip, mostly having to do with testing and monitoring the plane's battery.

While the investigation continues, Boeing is pursuing multiple ways to mitigate and contain a fire, if one starts in the batteries, one source familiar with the probe told Reuters. Three or four varying approaches would be pursued to ensure the batteries did not breach their containment systems, even if they caught fire, said the source.