Another big delay for Boeing's 787
Seattle Times aerospace reporter
Boeing is expected to announce this morning a further delay to its 787 Dreamliner program of at least three months, an industry source confirmed late Tuesday.
The news, first reported online Tuesday by The Wall Street Journal, could be a crushing blow to the aviation industry's confidence in Boeing. After earlier delays forced the company in October to push out its production timetable by six months, Boeing's leadership repeatedly assured customers and investors that it would meet the revised schedule.
"Boeing's credibility is shot," aviation analyst Scott Hamilton said. "It's going to have an impossible task to convince its customers and Wall Street that anything is under control from this point forward."
Boeing declined to comment Tuesday.
The first flight of the Dreamliner initially slipped several times from the end of August into the fall. Then in October, executives pushed the flight out to March and moved the first delivery from May to the end of 2008.
Now the airplane won't fly before June and there'll be no deliveries until 2009, according to a source independently confirming the Journal report.
After the news broke Tuesday, Boeing stock dropped almost 5 percent to close at $77.86.
The news was not surprising, given recent rumors of continued problems at Boeing's supplier partners. Parts shortages still plague the program.
The first airplane, which was slated to have its electrical power switched on for the first time this month, is still missing some necessary wiring, said one engineer who asked not to be identified.
An executive with one 787 supplier said the schedule has looked unrealistic for a long time. But Boeing has been reluctant to build any slack into the timetable, hoping its hard-to-meet deadlines will spur suppliers who are late completing their work.
"To get everybody moving, they have to present an aggressive schedule," said the executive, who also spoke on condition of anonymity.
The repeated slippages, now extending at least nine months, recall the creeping delays on the Airbus A380 superjumbo jet, which eventually stretched to two years and cost Boeing's European rival some $6 billion in profit.
"This delay is starting to cross over into Airbus A380 territory," said analyst Hamilton, who owns Boeing stock.
"Airbus' problems were in-house production issues," Hamilton said. "On the 787, the production issues are outside of Boeing and so harder for Boeing to control."
The delay will also exact a financial cost. Airline customers have ordered 817 Dreamliners to date, and those receiving airplanes late are typically entitled to compensation.
For example, Jetstar, the low-cost subsidiary of Australian airline Qantas, ordered 15 Dreamliners, most of which were to be delivered in 2009 to replace A330s with higher costs and shorter range, said Peter Harbison, managing director of the Centre for Asia Pacific Aviation, an Australian consultancy.
"For Jetstar, it's a critical ingredient to its long-haul strategy" within Asia, Harbison said. "Jetstar will accordingly be hit front-on by this."
Typically, it's very expensive to arrange short-term leases for wide-body aircraft to cover a delayed delivery.
The cost to Boeing of compensating one airline for 15 Dreamliners all pushed out three months could conceivably run to tens of millions of dollars.
Following the six-month delay in October, analyst Joe Campbell of Lehman Brothers estimated it would cost Boeing nearly $1 billion in extra expenses, including $200 million in penalty payments.
Boeing was able to swallow that hit without revising its 2008 profit forecast. It said most of the lost revenue would be added back in 2009.
The new delay may jeopardize profits for 2009.
Yet one factor may actually work in Boeing's favor to mitigate the impact of any new delay: After several boom years, the cyclical demand for airliners is thought to be on the down slope.
Heidi Wood, a Morgan Stanley analyst who downgraded Boeing's stock in December on expectation of a further delay, said that if the cycle turns down, airlines that have ordered multiple Dreamliners in the first year might be fine with getting fewer planes.
"The world aviation market might be cooling," Wood said. "A 787 delay may be on the margins more tolerable than it might have been when the market was roaring."
Dominic Gates: 206-464-2963 or email@example.com
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