The FAA said the new design must pass a series of tests before it is approved and that the agency will be "closely involved" in the certification process.
Boeing Co won approval from U.S. transport regulators to start testing a redesigned battery for the 787 Dreamliner, putting it one step closer to getting the troubled airplane back into regular service.
Also, sources said the planemaker was close to signing a $15 billion deal to sell about 170 single-aisle 737 planes to budget Irish carrier Ryanair.
Boeing's shares closed up 1.5 percent, hitting an almost five-year high, and extended gains in after-hours trade, while shares in Japan's GS Yuasa Corp, the battery maker for Dreamliner, rose 0.9 percent in Tokyo, outpacing a 0.5 percent drop in the benchmark Nikkei.
Late, the U.S. Federal Aviation Administration said it approved Boeing's battery certification plan and will permit two aircraft limited flights to test the new design.
Regulators grounded the 50 fuel-efficient Dreamliners in use by airlines on January 16 after a battery fire on a Japan Airlines Co Ltd 787 at Boston airport and a second battery incident on an All Nippon Airways Co Ltd flight in Japan.
Boeing halted deliveries of the lightweight aircraft, although its factories continue to make it. The firm is losing an estimated $50 million a week while the planes are grounded.
"We won't allow the plane to return to service unless we're satisfied that the new design ensures the safety of the aircraft and its passengers," U.S. Transportation Secretary Ray LaHood said in a statement.
Boeing's new battery - which it presented to the FAA in late February - is designed to minimize the chances of a short circuit, better insulates the cells within the battery, and adds a new containment and venting system to prevent damage even if the battery catches fire.
The FAA said the new design must pass a series of tests before it is approved and that the agency will be "closely involved" in the certification process. The FAA has been criticized for delegating too much responsibility to manufacturers in certifying equipment.
The FAA's decision was welcomed by Boeing, while Kyoto-based GS Yuasa declined to comment.
"Today's approval from the FAA is a critical and welcome milestone toward getting the fleet flying again and continuing to deliver on the promise of the 787," Boeing Chief Executive Jim McNerney said in a statement.
Japan's Civil Aviation Bureau, its FAA counterpart, reiterated that 787 flights can resume before Boeing finds the root cause of the battery problems as long as the fix demonstrates that the trouble experienced on the All Nippon Airways flight can be prevented.
"There are various steps towards resuming flights and this is another step forward so this is a good development. And I may be repeating my earlier comments, but there are still steps required," said Shigeru Takano, senior safety official at the CAB.
Airline customers cautiously agreed. All Nippon Airways, a Dreamliner launch customer which has 17 of the planes it wants to bring back into service, said the FAA approval represented "a major step towards the resumption of flights," while rival Japan Airlines said it was another step in the right direction, and would continue to work with related parties on the issue.
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