With the troubles surrounding Boeing's (BA) Dreamliner keeping the jets on the ground, airlines are starting to feel the pinch. With each passing day that airlines are forced to keep their Dreamliners idle, the monetary impact increases.
Japan Airlines said Monday that it plans to start discussions with Boeing about possible compensation for the money it is losing from keeping its Dreamliners on the ground. The airline said it expects the financial impact to reach between $7.5 million and $8 million by the end of March.
Boeing has its hands full trying to figure out what exactly is causing the lithium-ion batteries in its jets to catch fire, and the longer it takes, the higher the compensation demands will be.
Before the grounding, there were 50 Dreamliner jets in operation, with Japan Airilnes operating 7 of them, and has another 38 ordered.
Japan Airlines is not the first company to suggest that Boeing should offer compensation for its Dreamliner losses. Last week, another Japanese airline, All Nippon Airways also indicated that it would seek compensation. All Nippon operates more Dreamliners than Japan Airlines, so its compensation request is expected to eclipse that of Japan Airlines.
There is little question as to whether or not Boeing will honor the requests. It has future orders on the line, and any goodwill that it is able to garner from compensating airlines for their losses will go a long way toward making sure future orders are not cancelled.
The good news for Boeing, is that these compensation requests will not hit the company too hard. The true danger lies in the real possibility of canceled orders. Boeing is losing customer faith with each day that the planes are grounded, and if one airline starts to cancel orders, then other will be sure to follow.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors. Follow him on Twitter at @MFatMICenter.