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All Nippon Airways to Replace Engines in Boeing 787 Fleet
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Japan’s All Nippon Airways Co., Ltd (otherwise known as ANA) has recently announced that it will replace all the 100 Rolls Royce Holdings plc (RYCEY - Free Report) engines powering its fleet of Boeing 787 Dreamliner. Being the largest operator of The Boeing Company’s (BA - Free Report) 787 aircraft, ANA has either cancelled or delayed all of its domestic flights up to Sep 15, 2016, citing ongoing maintenance work on the aircraft.
The largest Japanese carrier took this drastic step as three 787 aircraft have been forced to return to airports since Feb 2016, following the risk of deteriorating flight conditions.The affected jets reported vibrations, which traced back to cracked turbine blades at the rear sections of the Rolls Royce engines in these jets.
Only five engines in ANA’s fleet of 50 787 Dreamliners need to be replaced immediately. However, to enhance safety, the company has decided to replace all the 100 engines, with Rolls Royce’s new blade, which is expected to be ready by the year end.
Replacement to Hurt ANA
Naturally, the replacements cannot be started before next year. Moreover, ANA’s management has stated that the entire process of replacing the faulty turbine blades may take as long as three years.
Note that all of the Dreamliners currently operated by ANA are equipped with a Rolls Royce engine. These replacements will thus not only hurt Rolls Royce’s reputation in the market but also lead to a revenue loss for ANA.
As per Reuters, ANA has cancelled 18 flights this month, translating into revenue loss of $800,000 for the company. Going ahead, management is apprehensive of more cancellations in the coming months.
Problem with 787 Dreamliner Continues
In this context, we remind investors that Boeing’s 787 has been facing issues since its inception. Its first flight was delayed by several years due to problems in production.
The 787 was fraught with issues even after delivery. In Jan 2013, its launch customer, ANA, faced problems related to battery malfunctioning, followed by Ethiopian Airlines experiencing the same issue.
Although these problems were addressed and solved by the company, the latest reports of faulty engines raise concerns about the 787 model in particular. Some might even believe the Rolls Royce engines to be not an ideal choice for 787 which deals a major blow to Boeing’s reputation and the Dreamliner portfolio’s performance.
Will Boeing’s Rival Gain?
Given that 40% of the 445 Dreamliner currently in operation are equipped with Rolls Royce engines, the engine replacement news would no doubt have made other airlines jittery too. Moreover, out of 1161 total orders for the 787 fleet, 716 are yet to be delivered to their respective customers. Such concerns may lead to order cancellations by customers, in turn, allowing its rival Airbus Group NV’s (EADSY - Free Report) A350 to capture a major portion of Boeing’s market share.
Stocks to Consider
Boeing, Rolls Royce and Airbus currently have a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Engility Holdings, Inc. , which sports a Zacks Rank #1 (Strong Buy).
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All Nippon Airways to Replace Engines in Boeing 787 Fleet
Japan’s All Nippon Airways Co., Ltd (otherwise known as ANA) has recently announced that it will replace all the 100 Rolls Royce Holdings plc (RYCEY - Free Report) engines powering its fleet of Boeing 787 Dreamliner. Being the largest operator of The Boeing Company’s (BA - Free Report) 787 aircraft, ANA has either cancelled or delayed all of its domestic flights up to Sep 15, 2016, citing ongoing maintenance work on the aircraft.
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Why Did ANA Take This Step?
The largest Japanese carrier took this drastic step as three 787 aircraft have been forced to return to airports since Feb 2016, following the risk of deteriorating flight conditions.The affected jets reported vibrations, which traced back to cracked turbine blades at the rear sections of the Rolls Royce engines in these jets.
Only five engines in ANA’s fleet of 50 787 Dreamliners need to be replaced immediately. However, to enhance safety, the company has decided to replace all the 100 engines, with Rolls Royce’s new blade, which is expected to be ready by the year end.
Replacement to Hurt ANA
Naturally, the replacements cannot be started before next year. Moreover, ANA’s management has stated that the entire process of replacing the faulty turbine blades may take as long as three years.
Note that all of the Dreamliners currently operated by ANA are equipped with a Rolls Royce engine. These replacements will thus not only hurt Rolls Royce’s reputation in the market but also lead to a revenue loss for ANA.
As per Reuters, ANA has cancelled 18 flights this month, translating into revenue loss of $800,000 for the company. Going ahead, management is apprehensive of more cancellations in the coming months.
Problem with 787 Dreamliner Continues
In this context, we remind investors that Boeing’s 787 has been facing issues since its inception. Its first flight was delayed by several years due to problems in production.
The 787 was fraught with issues even after delivery. In Jan 2013, its launch customer, ANA, faced problems related to battery malfunctioning, followed by Ethiopian Airlines experiencing the same issue.
Although these problems were addressed and solved by the company, the latest reports of faulty engines raise concerns about the 787 model in particular. Some might even believe the Rolls Royce engines to be not an ideal choice for 787 which deals a major blow to Boeing’s reputation and the Dreamliner portfolio’s performance.
Will Boeing’s Rival Gain?
Given that 40% of the 445 Dreamliner currently in operation are equipped with Rolls Royce engines, the engine replacement news would no doubt have made other airlines jittery too. Moreover, out of 1161 total orders for the 787 fleet, 716 are yet to be delivered to their respective customers. Such concerns may lead to order cancellations by customers, in turn, allowing its rival Airbus Group NV’s (EADSY - Free Report) A350 to capture a major portion of Boeing’s market share.
Stocks to Consider
Boeing, Rolls Royce and Airbus currently have a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Engility Holdings, Inc. , which sports a Zacks Rank #1 (Strong Buy).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>