Officials from the Federal Aviation Administration FAA.L, U.S. National Transportation Safety Board NTSB.L and Boeing joined Japanese authorities looking into what caused warning lights to go off on an All Nippon Airways Co (9202.T) domestic flight earlier this week, prompting the aircraft to make an emergency landing at Takamatsu airport in western Japan.

The incident prompted regulators in the United States and around the world to ground the 50 Dreamliners in service.

The lightweight, mainly carbon-composite 787 has been plagued by mishaps, with safety concerns centred on its use of lithium-ion batteries, which pack more energy and are faster to recharge but which are potentially more volatile.

A Japanese safety official onsite at Takamatsu told reporters on Friday it was possible that excessive electricity may have overheated the battery and caused liquid to spill out. Pictures released by investigators of the battery showed a misshapen, burnt out blue metal box with clear signs of liquid seepage.

At a news conference, the Japan Transport Safety Board JTSB.L said the charred battery and the systems around it would be sent to Tokyo for more checks. It said there were similarities with an earlier battery fire on a Japan Airlines Co (9201.T) 787 parked at Boston Logan International Airport.

"The impact of this incident on the aviation industry is great. That's why we feel the importance of swiftly producing a comprehensive report, free from bias," said Hideyo Kosugi, a JTSB inspector. "We hope to produce a report as soon as possible ... within a week."

"This information will go to Boeing and the FAA. They will assess it" before allowing the 787 to fly again in Japan. "The United States analysis may take a bit longer than this."

GS Yuasa Corp (6674.T), the Japanese firm that makes batteries for the Dreamliner, said it sent three engineers to Takamatsu to help the investigation.

A person at the company, who asked not to be named due to the sensitivity of the issue, said: "Our company's battery has been vilified for now, but it only functions as part of a whole system. So we're trying to find out exactly where there was a problem within the system."

Shares in the Kyoto-based battery maker rose as much as 3.9 percent on Friday, having dropped around 18 percent since the January 7 battery fire in the auxiliary power unit APU.L of the JAL plane at Boston.

The U.S. investigation into that incident is focused on the Japanese-made batteries, with no indication the APU - built by United Technologies Corp's (UTX.N) Pratt & Whitney - was involved, said a person familiar with the government probe, who was not authorised to speak publicly.

Mark Rosenker, a former NTSB chairman, said Boeing conducted over 1.3 million hours of testing before deciding the lithium-ion batteries were safe to use on the 787, and the company had to satisfy additional rigorous tests to be granted "special condition" by the FAA to use the batteries.

"I don't believe there was corner cutting in any way," he said. "I believe the FAA has done a good job in its certification process. And Boeing is a very formidable and extremely careful airplane manufacturer. You don't survive in this business by not making safe, efficient and reliable planes."

BIGGEST MARKET

Japan is the biggest market so far for the 787, with ANA and JAL operating 24 of the 290-seat wide-bodied planes, which have a list price of $207 million. Boeing has orders for close to 850 of the planes.

Goldman Sachs estimated the hit to ANA's annual operating profit could be up to $40 million if the grounding of its 17 Dreamliners drags on through March. The plane makes up close to a tenth of ANA's fleet and is crucial to its growth strategy.

ANA cancelled more than 60 domestic and international flights scheduled through Monday, affecting more than 10,000 passengers. JAL has cancelled 8 Dreamliner flights on its Tokyo-San Diego route until January 25. Other flights will switch to older planes.

A spokesman for the airline said ANA remained committed to the Dreamliner. "The Boeing 787 is an absolutely wonderful aircraft and we will spare no effort to help it get back in the air safely as soon as possible," said Hideya Oishi.

Australia's Qantas Airways (QAN.AX) said it cancelled an order for one of 15 Dreamliners earmarked for its budget arm Jetstar. It said the decision to cancel was taken late last year, before the plane's recent problems. Qantas has options to order 50 of the new generation aircraft.

Separately, Japan's transport ministry said a fuel leak on another JAL-operated 787 last week was due to a malfunction in a drive mechanism that controls a valve. It said the British company that makes the valve was investigating. The ministry declined to name the firm.

BAD BATCH?

The use of new battery technology is among the cost-saving features of the 787, which Boeing says burns 20 percent less fuel than rival jetliners using older technology.

Hans Weber, president and owner of TECOP International Ltd, a San Diego-based aviation consulting firm and former adviser to the FAA, said it was possible the incidents could be the result of a bad batch of batteries - as was the case with General Motors' (GM.N) Volt electric car, where fires were blamed on a defective batch of batteries supplied by A123 Systems, which has since gone into bankruptcy.

"We have to consider the suppliers were at one time producing a lot of equipment for the 787 and then everything got delayed, so some of the stuff they built has been sitting on the shelf for a while. Some of these might have been produced early in the production process and there may have been some deficiencies in the production process," he said.

The 787, a leap in aircraft design, has been plagued by cost overruns and years of delays, though orders last year helped Boeing overtake rival Airbus (EAD.PA) as the world's largest manufacturer of passenger jets.

"This could turn out to be a minor technical problem, but the FAA has turned it into a significant marketing challenge for Boeing," said Loren Thompson, defence consultant and chief operating officer of the Lexington Institute, a Virginia-based think tank.

(Additional reporting by Yoshiyuki Osada, James Topham, Mari Saito, Issei Kato, Maggie Lu Yueyang, Herng Shinn Cheng, Ruairidh Villar, William Rigby and Andrea Shalal-Esa; Writing by Ian Geoghegan; Editing by Jeremy Laurence)

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