November 10, 2010 / 6:28 PM / 7 years ago

UPDATE 2-Boeing halts 787 flights, emergency landing probed

* Smoke in cabin forces emergency landing

* Source says electrical equipment bay implicated

* Boeing says it will take time to analyze problem

* Investors ponder any new delay, shares fall (Adds source on apparent fire in equipment bay; adds analyst comment; updates shares)

By John Crawley and Kyle Peterson

WASHINGTON/CHICAGO, Nov 10 (Reuters) - Boeing Co (BA.N) halted test flights of its 787 jetliner on Wednesday, a day after an apparent electrical fire aboard one of its Dreamliners forced an emergency landing in Texas.

Boeing shares were down 3.2 percent to $67.02 in afternoon trading on the New York Stock Exchange as investors pondered the likelihood of another setback to the 787 program, already nearly three years behind schedule.

“I would think that now you have to check everything,” Alex Hamilton, managing director at EarlyBird Capital, said. “You’ve got to isolate the problem and try to figure out what it was.”

The incident on Tuesday was the first of its kind for the Dreamliner program and raised new questions for the company and for U.S. aviation regulators, who must certify that the aircraft is safe before it can be delivered to customers.

Boeing, the second-largest commercial plane-maker after EADS’ EAD.PA Airbus, is seeing a rebound in orders this year after an economic downturn drained demand from airlines in 2009.

A source familiar with the incident, who was not authorized to discuss the matter publicly, said the smoke was reported toward the back of the plane at about 1,000 feet.

This person said the source of the smoke appeared to be a fire in or near an electrical equipment bay and flames were visible. The fire affected key flight systems, which resorted to back-up power, the source said. But a Boeing spokeswoman said reports that the 787’s primary cockpit display was disabled were incorrect.

The fire was already extinguished by the time emergency crews reached the plane on the ground.

Robert Mann, a New York-based consultant and former airline executive, said an electrical problem with test gear could cause a slight delay. But a glitch with the aircraft’s embedded electrical system would be another matter.

“That would seem to be more serious to the program given it is a highly vaunted electric airplane concept they are trying to sell,” Mann said.

Boeing said the cause of the problem, reported by the company and the Federal Aviation Administration (FAA) to be smoke in the cabin on final approach to Laredo, Texas, was unknown.

The aircraft, carrying 42 crew and test technicians on a test flight from Yuma, Arizona, remained in Laredo on Wednesday while Boeing planned to evaluate data from the aircraft at its facilities in Seattle.

“This will take some time to accomplish,” Boeing spokeswoman Loretta Gunter said.

Meanwhile, the manufacturer has suspended test flights of its six Dreamliners.

    “We have decided to not fly the other airplanes until we better understand the incident,” Gunter said. “Whether this lasts all day or shorter or longer remains to be seen. The teams will focus on ground test objectives in the meantime.”

    The 787, a light-weight, fuel-efficient airplane, has generated impressive orders but has also been dogged by engineering, labor and supply chain problems.

    Boeing has not said if Tuesday’s incident would affect its plans to deliver a Dreamliner to its first customer, Japan’s All Nippon Airways (9202.T), in the first quarter of 2011.

    In recent weeks, there was sporadic talk by industry sources of more delays.

    Hamilton said another delay in the first delivery of the aircraft would not shock the market as much as snags for the 787 production schedule. Boeing gets paid for airplanes at delivery.

    “Even if they get initial deliveries out, are they going to have glitches going forward?” he said. “Are they going to smoothly be able to get up to 10 a month? I think that’s definitely in question.”

    The FAA is looking into the incident in which those aboard escaped the plane via emergency chute. A crew member sustained a minor injury, Boeing said.

    Gunter said the wide-body was loaded with technical gear for conducting flight tests. On Tuesday, the crew was monitoring a system that delivers nitrogen gas to fuel tanks to reduce any chance that vapors could ignite.

    Boeing has orders for about 850 Dreamliners, an unprecedented number for a plane still in development.

    The company said last month that that the plane handles well and it was “extremely satisfied” with flight tests. (Reporting by John Crawley and Kyle Peterson; Editing by Maureen Bavdek and Tim Dobbyn)

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