News Archive

Analysis: New trial for Boeing as Norwegian demands 787 repairs

Sun Sep 29, 2013 10:40pm EDT

PARIS/NEW YORK (Reuters) – The brochure for Boeing Co’s aircraft repair service makes a simple assertion: “No one knows Boeing airplanes better than Boeing.”

Now that claim is being put to a visible test as budget airline Norwegian Air Shuttle ASA grounded a brand new, $212 million 787 Dreamliner over the weekend. The airline demanded Boeing fix the state-of-the-art jet, saying it needs repairs after less than 30 days in service.

Investment analysts say the glitch involving a hydraulic pump is minor and isolated, and it is unlikely to affect Boeing’s stock price, which is towering at record levels.

But Norwegian Air’s vocal airing of its complaints is another black eye for the troubled Dreamliner. It follows a string of electrical and other safety problems that included battery meltdowns so severe they prompted regulators to ban the long-haul jetliner from flight for more than three months this year.

On Sunday, Polish airline LOT 787 flying from Toronto to Warsaw was forced to land at Iceland’s Keflavik airport after problems with its air system.

Norwegian Air’s formal request on Saturday for Boeing to take charge of fixing the plane throws a spotlight on an often overlooked facet of the 787’s performance: reliability. And it shows how quickly a plane that cannot fly can hit a carrier’s bottom line.

Like other airlines with small long-haul fleets, Norwegian Air does not have a spare plane it can use if a jet breaks down. The carrier said it had to rent planes and cancel tickets when it could not use its 787s, and the company’s stock has fallen 6 percent since a peak earlier this month, hit by a string of 787 problems and concerns about its broader business.

“Reliability is a big deal, especially for low-cost carriers such as Norwegian,” said Russell Solomon, an analyst at Moody’s Investors Service in New York.

But since the problem appeared to be a “one-off” and part of the normal growing pains for a new plane, he added, it probably would not unsettle Boeing investors.


When Norwegian Air began long-haul operations this year, it aimed to capitalize on the Dreamliner’s lower operating cost and the jet’s promised 20 percent savings on fuel burn.

But the first two Dreamliners, delivered in recent weeks and part of a planned fleet of eight, broke down more than half a dozen times in September, forcing Norwegian Air to lease back-up planes on short notice or cancel flights.

Norwegian Air grounded its 787s several times, citing problems with brakes, hydraulic pumps and power. On September 23, the carrier said one Dreamliner was beset with problems in the oxygen supply to the cockpit. A problem with a valve on the airline’s second 787 was repaired around the same time, but only after delaying a flight from Oslo to New York.

Boeing said the repairs of the latest problem, to be carried out in Stockholm where the aircraft is parked, would take a matter of days. That is much better than with the 787’s volatile battery system, which grounded the worldwide fleet of Dreamliners from mid-January through late April.

“Boeing has identified a number of specific improvements to address component reliability,” Boeing spokesman Marc Birtel said in a statement. The changes to hardware and software are “expected to lead to few schedule interruptions and significantly improve dispatch reliability.”

The plane’s power panels, for example, which have suffered electrical arcing and other issues, have been improved already and will receive more upgrades in coming weeks, Birtel said.

Norwegian Air was the first to sign up for Boeing’s GoldCare maintenance contract for its 787s, and is still the sole 787 customer for the plan. The brochure says GoldCare “significantly reduces the risk of new airplane introduction surprises” and helps airlines keep the plane in service.

But the grounded planes have prompted Norwegian Air to voice its dissatisfaction with the aircraft.

“The aircraft’s reliability is simply not acceptable,” Norwegian Air spokesman Lasse Sandaker-Nielsen said on Saturday.

“Our passengers cannot live with this kind of performance.”

Saturday’s announcement capped a tough week for Boeing in which Commercial Airplanes Chief Executive Ray Conner flew to Oslo to face Norwegian Air bosses over the earlier 787 mishaps.

Norwegian Air had laid blame on Boeing from day one, arguing that under its GoldCare service package Boeing was responsible for every fault and had an obligation to maintain reliability. Norwegian Air said it had asked the U.S. plane maker to face the press on Wednesday. But Conner didn’t speak to reporters, despite mounting press criticism and comments from Norwegian Air that Boeing lacked adequate quality control.

“They didn’t do themselves any favors at all when Ray Conner went to Norway and did not talk publicly,” said Richard Aboulafia, an analyst at the Teal Group in Fairfax, Virginia.

“There was no better signal for the airline to aggressively go public,” he added.

Boeing promised to locate spare parts centers at all of the airline’s long-haul destinations and send a team of engineers to the Nordics to monitor the planes.

Said Norwegian Air Chief Executive Bjorn Kos after the meeting: “It was a positive discussion.”

On Saturday, however, when the jet needed further repairs, Norwegian renewed its criticism.


All new airplanes have teething problems when first entering service, and most are forgotten when the issues are ironed out. The Airbus A380 superjumbo had wing cracks that required reworking by the manufacturer, but that crisis faded from the headlines.

Boeing faces an additional test with the 787 and Norwegian Air because Boeing had claimed that the jet’s advanced electrical systems and computerized fault-tracking would be both easier and cheaper to repair.

Boeing and rival Airbus also face a test of efforts to build lucrative after-sales service businesses to boost profit margins. Even as Boeing touts the reliability of its service, other airlines have been raising concerns about 787s.

A 787 operated by Poland’s LOT airline had to land unexpectedly in Iceland on Sunday due to a fault in its air identification system, a spokeswoman for the airline said on Sunday.

Like Norwegian air, state-owned LOT airline has had a list of problems with its Dreamliners, including last week delaying flights after check-ups showed two planes lacked gas filters.

LOT also said last week that Boeing had until the end of the year to agree on compensation for the three-month grounding of the 787 because of the battery issues, or it would take the matter to court.

Norwegian Air’s GoldCare maintenance contract has served only to deepen Boeing’s PR troubles by giving the company direct responsibility for sorting problem out.

Still, Solomon at Moody’s said it would take significantly more than Norwegian Air and LOT’s problems to dent investor confidence in Boeing as an investment, or a credit risk.

It would have to be “something that called into question the viability of the program,” hurting Boeing’s reputation and finances, he said.

Instead, Boeing is “performing quite well in these two important regards,” and still has strong growth prospects for its commercial plane business.

(The story corrects trashline, adds detail from Boeing in paragraph 14 and adds more detail about Norwegian complaints in paragraph 21.)

(Reporting by Balasz Koranyi in Oslo, Tim Hepher in Paris and Alwyn Scott in New York; Editing by Edward Tobin and Leslie Gevirtz)

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Tokyo Electric reverses earlier losses on financing hopes

Sun Sep 29, 2013 10:31pm EDT

TOKYO (Reuters) – Shares of Tokyo Electric Power Co (9501.T) reversed early losses on Monday after a source said creditors of the operator of the crippled Fukushima nuclear plant are set to provide some $5.9 billion in financing to the embattled utility by the year-end.

Tepco’s application on Friday to restart an undamaged nuclear plant helped convince some wavering smaller banks to join a group of 28 financial institutions in rolling over 77 billion yen ($784 million) in loans coming due at the end of October, the source at one of the creditor institutions told Reuters.

“As long as the company doesn’t go bankrupt, passive traders buy Tepco, and some active traders are even buying its stock because of its decision to restart operation of its plant,” said a fund manager at a Japanese asset management firm.

Tepco gained as much as 2.5 percent to 612 yen and was the most traded stock by turnover in mid-morning trade after sagging as low as 2.7 percent to 581 yen earlier.

Tepco on Friday applied to restart its Kashiwazaki Kariwa facility, the world’s largest nuclear plant, an initial step on its planned recovery from the Fukushima disaster, although approval is uncertain and any restart is many months away.

Tepco shares have soared 195 percent so far this year even though the company still has trouble getting Fukushima under control. Tepco has posted more than $27 billion in net losses since the Fukushima disaster, and it has had to acknowledge that radioactive water has been leaking into the nearby Pacific Ocean since the disaster.

According to data provider Markit, 4.17 percent of Tepco’s outstanding shares were on loan as of September 26, in line with 4.10 percent at the end of August.

(Reporting by Ayai Tomisawa; Editing by Supriya Kurane)

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After Airbus A400M, Europe faces dearth of big defense projects

Sun Sep 29, 2013 10:18pm EDT

PARIS/LONDON (Reuters) – European politicians will toast the long-awaited Airbus A400M military transport plane at a ceremony in Spain on Monday, but face warnings that Europe’s largest-ever collaborative defense project may be its last for years to come.

After a tortuous 30 years in development, the first of 170 troop and cargo planes ordered by seven nations grants Europe a step towards independence in military transport, a key plank of foreign intervention capability.

The ceremony in Seville, where the planes are assembled, will also kickstart an A400M export campaign, a glimmer of hope to a European aircraft whose foreign sales have been dogged by costly problems with its huge turbo-prop engines and a four-year delivery delay.

Still, the aircraft’s manufacturer has questioned how a continent pulled apart by weak finances and policy rifts will address future conflicts like Syria, Libya or Mali – and in turn how readily nations will co-operate on large defense procurements.

“I think we are further away from a common foreign and security policy than at any point in the last 20 years. I do not believe we will see a meaningful (one) in the next 20 years,” Tom Enders, chief executive of Airbus parent EADS, said last week in a speech on transatlantic security.

“I do not assume in my strategic planning that in the next 10 to 15 years there will be any new major European projects in our sphere of activity. I see governments are even trying to cut or reduce projects that previously been agreed,” Enders said.

The A400M was designed to meet a shortfall in military transport capacity among seven NATO nations: Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.

But the 20 billion euro project went more than 5 billion euros over budget, forcing buyer nations to agree a 3.5 billion euro bailout in 2010, part of which is supposed to be repaid from export royalties.

Many analysts say the region’s financial crisis has exacerbated divisions and dampened interest in projects that have a habit of running heavily over-budget.

“We will go through a phase now where there is not only little collaboration but also little investment in new products,” said independent defense analyst Howard Wheeldon.

A recent decision to halt production of the Boeing (BA.N) C-17 strategic jet-powered transporter, a rival to the A400M, breathed life into hopes for new export orders for the plane.

Until now, the only export customer is Malaysia, with four planes on order. South Africa canceled an order.

Airbus sees a market for several hundred aircraft. But the company has expressed concerns about plans by some of the plane’s European customers to sell A400Ms they have ordered directly on to customers outside the region, frustrating Airbus hopes for producing extra planes.

Germany, Spain and most probably France, analysts say, want to jump in front of Airbus and export some of their domestic allocations directly to boost budgets.

That also poses technical difficulties over export royalties. According to two people familiar with the 2010 bailout plan, the first 174 planes (including Malaysia’s four) are excluded from the royalty agreement.

Enders told Reuters that such export plans were “understandable” in the weak fiscal climate, but added: “As an industrialist, I cannot be very happy about this approach and I have to ensure we are not leaking value”.

(Additional reporting by Adrian Croft in Brussels; Editing by Kenneth Maxwell)

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Japan August output slips but seen rising on exports, domestic demand

Sun Sep 29, 2013 8:29pm EDT

TOKYO (Reuters) – Japan’s industrial output slid 0.7 percent in August after a hefty gain in the previous month, but analysts see factory activity and the broader economy on track for a steady recovery backed by exports and firm domestic demand.

A separate survey showed manufacturing activity expanded in September at the fastest pace since the March 2011 earthquake, underscoring the strength of the world’s third-largest economy.

Retail sales also rose 1.1 percent in August from a year earlier, data showed on Monday, in a sign consumer spending is sustaining momentum.

The data is unlikely to change expectations for Prime Minister Shinzo Abe to decide this week on the planned sales tax hike, the biggest effort by Japan in decades to fix its tattered public finances.

“Factory output is a bit weak now but will return to levels before the March 2011 earthquake around October. Companies are starting to produce more and aren’t too worried about uncertainties in the overseas economy,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Abe – whose reflationary policies have boosted share prices, weakened the yen and bolstered sentiment in the world’s third largest economy – is expected to make the sales tax decision after confirming readings in a key Bank of Japan business sentiment survey due 8:50 a.m. Tuesday (2350 GMT Monday).

The August drop in industrial output was smaller than a 0.4 percent decline projected in a Reuters poll, and followed a 3.4 percent gain in the previous month, data from the Ministry of Economy, Trade and Industry (METI) showed.

Manufacturers surveyed by the ministry expect output to rise 5.2 percent in September and increase 2.5 percent in October, the data showed.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 52.5 in September from 52.2 in the previous month, remaining above the 50 threshold that separates contraction from expansion for the seventh month.

The survey showed that manufacturing activity expanded at the fastest since February 2011, one month before the natural disaster struck the country’s northeast coast.

Japan’s economy grew an annualized 3.8 percent in the second quarter, driven in large part by strong consumer spending, and the central bank upgraded its assessment of the economy earlier this month to say it was recovering moderately.

The BOJ’s quarterly “tankan” corporate survey will likely show the headline index for big manufacturers’ sentiment improved three points from the previous quarter to plus 7, according to a Reuters poll of 22 economists.

(Writing by Leika Kihara; Editing by Eric Meijer)

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Japan August retail sales rise 1.1 percent

Sun Sep 29, 2013 7:57pm EDT

TOKYO (Reuters) – Japanese retail sales rose 1.1 percent in August from a year earlier, government data showed on Monday, in a sign that consumer spending is gaining some momentum.

That compares with the median estimate for a 0.1 percent annual increase and followed a 0.3 percent decline in the year to July, data from the Ministry of Economy, Trade and Industry showed.

To view full tables, go to the website of the Ministry of Economy, Trade and Industry at:


(Reporting by Stanley White; Editing by Edmund Klamann)

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Japan September PMI shows manufacturing expanding at fastest since 2011 quake

Sun Sep 29, 2013 7:16pm EDT

TOKYO (Reuters) – Japanese manufacturing activity expanded in September at the fastest pace since a record earthquake and nuclear disaster in early 2011, a survey showed on Monday, suggesting the economy has been able to stage a full recovery due to strong domestic demand and recovering exports.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 52.5 in September from 52.2 in the previous month.

The index remained above the 50 threshold that separates contraction from expansion for the seventh month and showed that activity expanded at the fastest since February 2011, one month before the natural disaster struck the country’s northeast coast.

The output component of the PMI index also gained to 53.8 from 53.5 in August, to show the fastest growth since the quake.

The index for new export orders jumped to 53.3 from 49.3 in August, marking the fastest growth in orders since March this year.

Japan’s economy expanded for a third straight quarter in April-June, outpacing many G7 nations, as Prime Minister Shinzo Abe’s pro-growth policies bolstered household spending and drove down the yen, benefiting exports.

The Bank of Japan also offered an intense burst of stimulus in April, pledging to double the country’s base money via aggressive asset purchases to achieve its 2 percent inflation target in two years.

(Reporting by Stanley White; Editing by Kim Coghill)

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LOT airline Boeing Dreamliner forced to land in Iceland

Sun Sep 29, 2013 7:14pm EDT

WARSAW (Reuters) – A Boeing 787 Dreamliner (BA.N) operated by Poland’s LOT LOT.UL airline had to land unexpectedly in Iceland on Sunday due to a fault in its airplane identification system, a spokeswoman for the airline said on Sunday.

The plane was flying from Toronto to Warsaw when it was forced to land at the island’s Keflavik airport, at Reykjavik.

“The aircraft had to land due to an air identification system fault. The Norwegian authorities have refused permission to fly over its territory, even though other countries gave permission to fly over theirs,” Barbara Pijanowska-Kuras said.

Boeing said the diversion resulted from an “inoperative antenna” used to transmit the plane’s identification information during flight. Flight is allowed with the antenna not working, but requires air traffic controllers along the route to pre-approve the flight, Boeing said.

“LOT has already made the proper arrangements and parts and personnel are en route to address the issue and return the airplane to flight status,” Boeing spokesman Marc Birtel said in a statement sent to Reuters. “Boeing stands ready to help if asked.”

The Dreamliner was expected to be a game-changer for the aviation industry, but there have been delays getting it into service and setbacks including the grounding of all the planes due to battery problems.

Budget airline Norwegian Air Shuttle (NWC.OL) on Saturday took one of its brand new Dreamliners out of long-haul service and demanded that Boeing repair the plane after it suffered repeated breakdowns. ID:L6N0HP0UE

For state-owned LOT, which has struggled for years with huge operating losses, the incident adds to a list of problems with the Dreamliners. Last week it had to delay flights after check-ups showed two planes lacked gas filters.

LOT is demanding from Boeing compensation for lost revenue and has given Boeing time until the end of the year to settle on compensation over faults or face court action. ID:L5N0HM16M

Pijanowska-Kuras said that LOT had sent two planes to get the Dreamliner passengers to Poland, while Boeing’s service company will be working to solve the issue so that the Dreamliner could be taken to Poland “as soon as possible”.

She said it is too early to say whether the unexpected landing in Iceland would be added to LOT’s list of claims from Boeing.

(Reporting by Agnieszka Barteczko in Warsaw and Alwyn Scott in New York; Editing by Patrick Graham and Leslie Gevirtz)

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Roiled by U.S. & Italian politics, safe-havens gain

Sun Sep 29, 2013 7:06pm EDT

SYDNEY (Reuters) – U.S. stock futures and the dollar came under pressure on Monday as a shutdown of the U.S. government seemed increasingly likely, though the euro had political troubles of its own as the Italian government teetered on the edge of collapse.

The result was a general rush to safe havens including the yen, Swiss franc and some sovereign debt. U.S. Treasuries also benefited from a view that the economic damage done by a government closure would be yet another reason for the Federal Reserve to keep interest rates low for longer.

“Weekend political dynamics in the U.S. and Italy are likely to keep markets on the defensive at the start of a busy week for data and policy events,” wrote analysts at Barclays in a note.

The damage was clear in U.S. stock futures where the SP 500 contract shed 0.8 percent, as did the E-MINI SP. Asian stocks could follow that lead lower, though markets in the region are usually reluctant to be the first to react to U.S. and European events that happen over a weekend.

The air of risk aversion lifted the yen across the board. The dollar fell to 97.88 yen from 98.20 late in New York on Friday, while the euro sank to 131.98 yen from 132.78.

The euro also lost ground to the Swiss franc, hitting its lowest since early May at one point.

The losses came as Italian Prime Minister Enrico Letta said he would go before parliament on Wednesday for a confidence vote after ministers in Silvio Berlusconi’s center-right party pulled out of his government at the weekend.

Letta said he wanted to avoid elections under the current widely criticized voting system which he said would produce more stalemate, but it was not clear if an alternative majority could be found.

Meanwhile in Washington, it seemed increasingly unlikely that Republicans and Democrats could reach a deal on funding the government before the fiscal year ends at midnight on Monday.

If so, many government employees will be furloughed and the Labor Department will not issue its monthly employment report scheduled for Friday.

It would also set the stage for a far-more consequential fight to raise the federal government’s borrowing authority. Failure to raise the $16.7 trillion debt ceiling by mid-October might force the United States to default on some payment obligations – an event that could cripple the economy and send shockwaves around the globe.

Markets have always assumed it would never actually come to default, given the grave repercussions. Indeed, U.S. government debt still seemed to be considered a safe haven with Treasury futures trading 9 ticks higher on Monday.

Investors also bid up Eurodollar futures on expectations that a drawn-out government shutdown and brinkmanship over the debt ceiling would keep the Fed from tapering its asset buying anytime soon.

In commodity markets, gold was a shade firmer at $1,339.66 an ounce, while NYMEX crude oil lost 87 cents to $102.00 a barrel.

(Editing by Mark Bendeich)

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Stock futures fall as government shutdown seems likely

Sun Sep 29, 2013 6:12pm EDT

NEW YORK (Reuters) – U.S. stock index futures fell on Sunday as a last-minute deal to resolve the budget battle in Washington appeared less likely, making a government shutdown more likely.

Such a shutdown is expected to impact markets by injecting massive amounts of uncertainty into all asset classes. If a deal is reached quickly, that might allow markets to recover, but a prolonged shutdown could have significant implications for economic growth and consumer confidence.

SP 500 futures fell 12.8 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 73 points and Nasdaq 100 futures sank 16 points.

(Reporting by Ryan Vlastelica; Editing by Leslie Gevirtz)

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