Business Insurance will be back online in October. Please check back then to subscribe/register.

All existing subscriptions will be honored. Contact info@businessinsurance.com with any questions.

ARC: HOW COMPANIES CAN TAKE ADVANTAGE OF STRATEGIC RISK MANAGEMENT TO BOLSTER THEIR BRAND AND COMPET

Boeing's handling of 787 Dreamliner grounding will determine brand impact

Boeing 787 Dreamliner
Photo by Bloomberg A Boeing Co. 787 Dreamliner aircraft operated by All Nippon Airways Co. (ANA) stands on the tarmac after making an emergency landing at Takamatsu airport in Takamatsu, Kagawa Prefecture, Japan, on Wednesday, Jan. 16, 2013.

The grounding of Boeing Co.'s 787 Dreamliner fleet undoubtedly will have a short-term negative effect on the company, but it also could yield long-term benefits, aviation industry and risk management experts say.

“Yes, there is going to be an impact,” said Michel Merluzeau, managing partner and aviation and defense industry consultant at G2 Solutions L.L.C. in Kirkland, Wash. “An event of this nature has the potential to be disruptive.”

He said the brand impact “can be positive and negative.”

The immediate effect on Chicago-based Boeing's brand is negative, Mr. Merluzeau said, “but you can turn this around. Let's be hopeful that Boeing can see the opportunity and actually inform and highlight the safety features of this aircraft.”

For example, if an incident similar to the battery problem that forced an All Nippon Airways Co. 787 to make an emergency landing in Japan on Jan. 16 had occurred on an aircraft without the Dreamliner's system redundancies and warning systems, the consequences might have been disastrous, he said.

“Financially, of course, it's costing them hundreds of millions on top of the billions of dollars from the four years of delays,” said Richard L. Aboulafia, vice president, analysis, at aerospace and defense industry analyst Teal Group Corp. in Fairfax, Va.

Still, he said, there's a chance that “if they get (the solution to the problem) right, all the upfront agony will be forgotten except by historians.”

A Boeing spokesman declined to comment on events that are under investigation. But in a statement after the Federal Aviation Administration grounded the 787 fleet and suggested regulators elsewhere do likewise, Boeing said it was “committed to supporting the FAA and finding answers as quickly as possible.”

The Dreamliner relies more on electrical systems than previous passenger airliners, and the lithium-ion batteries it uses to produce more energy at reduced weight than the heavier nickel-cadmium batteries used on other passenger jets.

%%BREAK%%

Asked whether it was unusual that Boeing chose a battery supplier, Japan-based GS Yuasa Corp., that media reports said have little aviation experience, Mr. Aboulafia called the situation “unusual but not unheard of.”

Much has also been debated about the 787's supply chain, which involves hundreds of companies around the world providing parts for the aircraft in thousands of factories, an approach cited as a factor leading to the delays in the aircraft's development and delivery.

But Mr. Merluzeau of G2 Solutions said he thinks Boeing's supply chain approach is the right one for a company that needs to remain competitive financially.

“Any new system needs tweaking. Sometimes you think there's something a supplier could do and they're not as capable as you thought, so you go to a different supplier,” he said.

Mr. Aboulafia said, “The idea of a company building its own batteries or even its own electrical systems — that was a debate that General Motors had in 1952.” In other words, it's common for companies to outsource segments of their production.

Because of the 787's strategic importance to Boeing, the company's problems with the aircraft can be viewed from a strategic risk management perspective. Emphasizing that she has no inside knowledge of the Dreamliner project or the risk management surrounding it, Carol Fox, director of the strategic and enterprise risk practice at the Risk & Insurance Management Society Inc. in New York, said the Dreamliner program likely involved considerable scenario analysis and stress testing.

“So from a supplier perspective, from the technology perspective, from the regulatory perspective, they're identifying risk, they're modeling risk, they're stress testing what could occur, building those plausible scenarios and then taking a decision based on their risk appetite and risk tolerances,” Ms. Fox said. “I don't know what their scenarios look like, whether they ran a scenario that basically said (what happens if) we get shut down globally for whatever reason.

“It's not to say that nothing ever goes wrong, if you do a really good job of having that strategic risk management discipline in there,” she said. “Things happen that surprise all of us.”

Ms. Fox also said that often in such complex projects, “There's a group of people that do the planning and then that's transitioned over to operations. Sometimes that work that's been done in planning either isn't translated or isn't executed or reviewed. That's where we see a lot of the disconnects.”

More from BI