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For Japan's ANA, Boeing 787 grounding may dent growth plan

By Yoko Kubota

TOKYO (Reuters) - All Nippon Airways <9202.T>, which currently has the biggest fleet of Boeing Co 787 Dreamliner jets, may have to scale back its next 2-year plan as it weighs the mounting cost of the new aircraft's grounding.

Asia's biggest airline by revenue and a key launch customer for Boeing's newest plane, has put the technologically advanced 787 at the center of its growth strategy, keen to ally its brand to the lightweight, fuel-efficient jetliner.

The carrier's plans to harness the plane, which seats around 250 passengers, to new routes that its existing fleet can't serve profitably - such as linking Tokyo to Silicon Valley on the U.S. West Coast - are now on hold.

"The 787, which is the pillar of our management strategy, is in such a condition we have yet to decide on whether we can present a 2-year plan like we did in the past," ANA spokesman Ryosei Nomura told Reuters, noting the mid-term plan may be for a shorter period or may leave out details on the profit outlook.

ANA, which grew from a local helicopter service set up in the immediate aftermath of World War II and now carries 3.7 million passengers a month, normally issues a business plan around February for the next two years. Its current plan aims to grow operating profit by 44 percent to 130 billion yen ($1.47 billion) for the year to March 2014, rising to 150 billion yen over the next few years.

EYEING MARKET SHARE

The mid-sized Dreamliner, which has a list price of $207 million, can be used on long-distance flights of up to 15,750 km, and is key to ANA's expansion from a "hub-and-spoke" carrier to one that offers direct "point-to-point" flights and can grab market share from rivals such as Delta Airlines , American Airlines , British Airways and Air France .

"Not being able to use the 787 means its growth will be pushed back," said Masaharu Hirokane, an analyst at Nomura Securities in Tokyo. "It would be difficult for ANA to win customers with routes to mid-sized cities and to take more (market) share."

The 787 was grounded worldwide last week after an ANA-operated Dreamliner made an emergency landing on a domestic flight due to what is so far thought to be a problem with a lithium-ion battery - one of the technological advances that makes the aircraft lighter and about a fifth more fuel-efficient than most existing planes.

Earlier this month, a similar battery caught fire on a Japan Airlines <9201.T> 787 parked at Boston Logan International Airport. Boeing has since halted 787 deliveries, and U.S., Japanese and French aviation safety officials are investigating the problems.

Officials on Wednesday continued to examine the charred battery from the plane that made the emergency landing, and said it did not appear to have overcharged. U.S. authorities looking into the Boston fire, on Sunday ruled out excessive voltage as a cause of that incident.

ANA, which has a staff of around 14,200 and is valued at more than $7 billion, has taken delivery of 17 Dreamliners, making up around 7 percent of its total fleet of 231 aircraft as of end-December.

NO CHANGE ON ORDERS

The 787's grounding is particularly badly-timed for ANA, which launched its Tokyo-San Jose route, using the Dreamliner, on January 11, just days into a slew of incidents that dented Boeing's boast to have produced a game-changing airplane.

Such long-distance routes - with steady demand, but not enough to regularly fill bigger planes - were ones ANA could not serve in the past. The carrier has said it has no plans to change its order for another 49 of the Dreamliners, which it also puts to work on domestic flights.

Since the 787 grounding, ANA has canceled 309 domestic and 51 international flights scheduled to use the plane between January 16-28. It has used or will use substitute planes on a total of 771 domestic and 114 international flights, it said.

JAL, which last year emerged from one of Japan's biggest bankruptcies through a controversial state-led restructuring, has ordered 45 Dreamliners, with seven already delivered. It has canceled 30 international flights for January 16 to February 1.

"At this point in time, both airlines have responded relatively well to the situation," said Nicholas Cunningham, an analyst at Macquarie Capital Securities in Tokyo. "Longer term - in terms of additional aircraft deliveries - we will have to see how the investigation proceeds and how the airlines react to that."

Analysts predict it could be months before the Dreamliner is back in commercial service, though they say the immediate financial impact is limited. Shares in ANA and JAL have slipped just 1.6 percent and 3.5 percent, respectively, since the 787 incidents this month.

For the year to end-March, ANA has forecast an operating profit of 110 billion yen, up more than 13 percent, and just ahead of market predictions for 107.8 billion yen. Only one of 10 analysts surveyed by Thomson Reuters I/B/E/S has revised the forecast within the past month.

Nor do many analysts expects ANA to revise that full-year forecast when it reports October-December earnings on January 31. JAL, which has said it so far sees a limited impact on its profits from the 787 problems, releases its results on February 4.

But a protracted Dreamliner grounding could knock up to 10 billion yen off ANA's future annual operating profit, analysts estimate.

Airlines, which can't just go and lease substitute planes at short notice, face increased maintenance costs on planes they had earmarked for retirement but which may now be needed to cover for the idled 787s and for delays in delivery of new aircraft.

Takehisa Kawamata, another ANA spokesman, said the airline has not yet decided on compensation plans with Boeing, though this could be discussed in the future. Analysts said ANA may be offered discounts by Boeing on future aircraft purchases.

(Additional reporting by Yuka Obayashi; Editing by Ian Geoghegan)

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