* FAA clears plane for test flights
* NTSB pinpoints short circuit in single cell
* Battery certification process to be reconsidered
* Investors underestimating delays: analysts
By Jim Wolf and Alwyn Scott
WASHINGTON/NEW YORK, Feb 7 (Reuters) - U.S. agencies cleared Boeing Co to restart test flights of its grounded 787 Dreamliner in order to get more data on potentially faulty batteries, but they also demanded a closer look at how the batteries were approved, which may delay resuming delivery of Boeing's newest aircraft.
The 50 Dreamliners in service were grounded worldwide on Jan. 16, after a series of battery incidents, including a fire on board a parked 787 in Boston and an in-flight problem on another plane in Japan. The groundings have cost airlines tens of millions of dollars, with no end in sight.
Late on Thursday, the U.S. Federal Aviation Administration said it would allow test flights, under more stringent rules, to monitor the batteries in flight. That followed an earlier, one-time flight to move a 787 from Texas to Washington state.
Earlier in the day, Deborah Hersman, head of the U.S. National Transportation Safety Board, said regulators must review the "special conditions" used in approving lithium-ion battery technology on the Dreamliners.
"There have now been two battery events resulting in smoke, less than two weeks apart, on two different aircraft," Hersman said. "The assumptions used to certify the battery must be reconsidered," she added.
Boeing investors took the news in stride, pushing shares slightly higher on the day. Analysts said the market was focusing on the wrong issue: the short-term question of fixing the battery, versus the longer-term prospect that the entire battery system might need to be approved again.
If the battery needs to be re-certified, "you're talking about changes to the 50 they've delivered, significant amount of engineering commitment on the 787-9. I see this as still having a significant amount of question marks," said Ken Herbert, an analyst at Imperial Capital in San Francisco.
Boeing shares are 3 percent higher since the 787 was grounded on Jan. 16, despite the headaches it has caused the planemaker and the demands for compensation.
Even short sellers - investors who seek out shares that are likely to fall - have largely left the stock alone. According to Markit's Data Explorers, just 0.3 percent of shares available for borrowing were being used for short bets as of Wednesday.
"The market is focusing on the battery short circuit, which implies a simple fix," said Carter Leake, analyst at BB&T Capital Markets. "But they're missing the much bigger issue, which is the questioning of the certification process. Hersman is basically saying we're questioning the original certification altogether."
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The NTSB's Hersman mentioned nine so-called special conditions the FAA set in 2007 in approving Boeing's use of the battery, and its plan to allow the battery to burn itself out if it caught fire, because the risk was considered extremely remote.
Boeing's certification tests put the chances of smoke from a 787 battery at one in every 10 million flight hours.
"The 787 fleet has accumulated less than 100,000 flight hours yet there have now been two battery events," Hersman said.
The special conditions and the design assumptions are part of a broad review that the FAA launched last month, before the second battery incident. Hersman said the NTSB was not yet making any further recommendations.
Hersman also said on Thursday that the NTSB has isolated the source of a Jan. 7 battery fire in Boston to one of the battery's eight cells, but still has not found the root cause of the fire.
The NTSB plans to issue an interim factual report in 30 days, though the decision of returning the plane to regular flight rests with the Federal Aviation Administration.
In a joint statement, Transportation Secretary Ray LaHood and FAA Administrator Michael Huerta reiterated that the FAA's comprehensive review was ongoing.
"We must finish this work before reaching conclusions about what changes or improvements the FAA should make going forward. The leading experts in this field are working to understand what happened and how we can safely get these aircraft back into service," they said.
In the meantime, analysts have expressed concerns about a build-up of inventory, soaking up several billion dollars of cash, as Boeing continues to produce the 787.
"For Boeing, it is encouraging to see that there has been concrete progress in the investigation but the (NTSB's) point that there is still a long road ahead ultimately appears more important," said Nick Cunningham, aerospace analyst at UK-based Agency Partners, an independent research firm.
As Hersman was addressing the news conference in Washington DC, the first 787 flight since mid-January left Texas, with no commercial passengers and a minimum crew, and landed safely in Washington with no visible issues. Ultimately scheduled for delivery to China Southern Airlines, the aircraft has not yet been handed over to the customer.
The FAA had approved the single flight separately from Boeing's request to run a series of test flights, placing a number of conditions, mostly having to do with testing and monitoring the plane's battery.
Later in the day, the FAA cleared Boeing to resume test flights, stating that their primary purpose "will be to collect data about the battery and electrical system performance while the aircraft is airborne."
Boeing said it would resume limited 787 test flights soon, without specifying a date, adding that it was "confident that the 787 is safe to operate for this flight test activity."
While the investigation continues, Boeing is pursuing a number of ways to mitigate and contain a fire, if one starts in the batteries, one source familiar with the probe told Reuters. Three or four approaches would be pursued to ensure the batteries did not breach their containment systems, even if they caught fire, said the source.