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Thursday, April 10, 2008 - Page updated at 10:44 AM

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Boeing 787 Launch to Be Delayed Again

AP Business Writer

Boeing Co. pushed back its oft-delayed 787 jetliner by another six months Wednesday, postponing the jet's debut in commercial service until the third quarter of 2009, further jolting the company's credibility and likely costing it billions of dollars in additional costs and penalties.

The latest delays - the third revision to its delivery schedule and fourth switch in the plans for first test flight - underscore the problems Boeing is having keeping to a schedule while leaning heavily for the first time on outside contractors to do most of the manufacturing work. The aircraft touted for its potential to be more fuel-efficient than other large jets is now more than a year behind the original schedule.

The inaugural test flight now isn't expected to take place until the fourth quarter as Boeing builds more time into the schedule to reduce the risk of further delays. The company had initially planned to begin test flights last August or September and deliver the first plane to Japan's All Nippon Airways this May - a delivery it had recently rescheduled to early 2009.

Investors showed relief that the long-rumored delay had finally been announced, driving up shares in the company by $3.58, or 4.8 percent, to close at $78.60 following a sharp decline in recent weeks.

But customers are increasingly uneasy about the ongoing setbacks. All Nippon Airways spokesman Rob Henderson said the carrier was "extremely disappointed" with the latest delay. He said that until Boeing provides a definitive schedule it cannot assess the impact on its route planning.

The more than 50 airlines that have placed 892 orders for the top-selling plane will be entitled to hefty compensation for the delays, and Boeing's reputation for reliability also is at stake. The company can ill afford any more program glitches or reneging on schedule commitments if it intends to maintain the momentum the 787 has helped it seize from rival Airbus.

"I think there's an awful lot riding on this," said Richard Aboulafia, an analyst with the aerospace consulting firm Teal Group. "It's one of those three-strikes-and-you're-out scenarios from the standpoint of management, from the standpoint of a lot of people who are needed to keep the faith."

No customer has yet to cancel an order for the new jet, but the backlog is valued at a whopping $151 billion.

The 787, Boeing's first newly designed jet since airlines started flying the 777 in 1995, will be the world's first large commercial airplane made mostly of carbon-fiber composites, which are lighter and more durable than aluminum and don't corrode like metals. Boeing says it will be cheaper to maintain and offer greater fuel efficiency and more passenger comforts than comparable planes flying today.

But the unprecedented plan to assemble a jet from components manufactured largely by other companies has run into multiple snags involving outsourcing problems involving contractors in numerous countries.

The company blamed the newest delay in part on slower-than-expected progress on work that suppliers didn't complete, which Boeing has had to do on the final assembly line, and on engineering changes that had to be made on the plane's center wing box.

Engineers recently discovered that the center wing box, which connects the plane's wings to the fuselage and holds fuel, needed to be stiffened. That required the addition of hundreds more clips and fasteners, said Pat Shanahan, vice president and general manager of the 787 program.

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Shanahan said he's confident Boeing will hit its new targets because the new schedule has enough wiggle room built into it and because there's a lower risk of time-consuming surprises in the remaining work on the first airplane.

"There are no technical inventions needed here. It's a matter of burning through the work," he said on a conference call.

Boeing now anticipates delivering a total of 25 of the new airplanes in 2009, down from the originally planned 112.

"Over the past few months, we have taken strong actions to confront and overcome start-up issues on the program, and we have made solid progress," said Scott Carson, president and CEO of Boeing's Seattle-based commercial airplanes unit. "Nevertheless, the traveled work situation and some unanticipated rework have prevented us from hitting the milestones we laid out in January."

The company said research and development costs will likely increase because of the latest delay but it expects no change to 2008 earnings guidance. It said it will disclose more financial details when it reports first-quarter earnings on April 23.

Citing evidence of what it said is substantial progress, Boeing said it will power up the first aircraft by the end of June and also begin final assembly of the third and fourth 787s.

The company also revised the scheduling of the different 787 models, saying the larger 787-9 now will follow the original 787, with first delivery planned for 2012, while the shorter-range 787-3 that originally was pegged for a 2010 delivery will be pushed back behind the 787-9.

Cai von Rumohr of Cowen and Co. said the latest delay had been expected but it may take months to know whether the program's schedule is likely to slip again. "We continue to believe that the critical milestone for determining whether all the bad news is on the table is apt to be a week or two after first flight" in the fourth quarter, he said in a note to investors.

The analyst said Boeing could face extra costs exceeding $4 billion because of the delays and late penalties to the airlines. The company earned $4.1 billion in 2007.

Carson declined to estimate the financial impact of the latest schedule delay.

Northwest Airlines Corp. is scheduled to be the first 787 customer in North America.

"We are disappointed by the delay, but we still believe the 787 will be a game-changing airplane for our fleet," spokesman Dean Breest said.

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AP Business Writers Elizabeth M. Gillespie in Seattle and Josh Freed in Minneapolis contributed to this report.

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On the Net:

http://www.boeing.com

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