Boeing Delays Dreamliner Again

The planemaker says the delay won't hurt earnings, but as the race against rival Airbus continues, the 787's glitches are embarrassing

Boeing

by Judith Crown and Carol Matlack

Boeing (BA), acknowledging continued production and design glitches on its 787 Dreamliner, pushed back delivery of the first plane for at least four months, to late 2009. The widely expected delay (BusinessWeek.com, 4/4/08) means the fuel-sipping jet is now 14 to 16 months behind schedule, which could force some airlines to seek compensation from the aircraft maker.

Boeing now expects to deliver only 25 of the planes during 2009, down from an earlier projection of 109. That will crimp 2009 revenues because more than 90% of an aircraft's sale price is typically paid upon delivery. But the Chicago company said it still expected strong earnings growth in 2009, and said its 2008 profit forecast remained unchanged. That seemed to reassure investors, who sent the stock up nearly 5%, to 78.60 in New York Stock Exchange trading.

Scott Carson, president and chief executive of Boeing's Commercial Airplanes unit, said in a conference call with analysts and reporters that unanticipated rework and other problems prevented the Dreamliner team from hitting milestones laid out in January, and that a more conservative approach to setting its milestones seemed prudent. "Once a week at least, I visit the airplane up in final assembly in Everett (Washington) and I must tell you I am very encouraged with the programs I am seeing on airplane No.1," Carson said. "We have indeed made significant strides. It wasn't been fast enough, but it is much faster and better than it was several months ago."

Customers Growing Restless

The company said while research and development costs will likely increase as a result of the schedule change, they won't impair 2008 per-share earnings, which are forecast in a range of $5.55 to $5.85. However, the cost of delays and penalties to airline customer could exceed $4 billion, Cowen and Co. analyst Cai von Rumohr said in a note to investors Wednesday. (The company earned $4.07 billion on sales of $66.39 billion in 2007).

As a result, the 787 won't contribute to profits next year. Moreover the R&D costs, combined with advance payments to suppliers, will squeeze cash flow. Boeing's expectations for 2009 per-share earnings, to be outlined with the disclosure of first quarter earnings on April 23, won't be as high as the current consensus of $6.99 and are likely to be in the range of $6.35 to 6.75, von Rumohr said.

Boeing originally targeted the first flight for last August and the first delivery for May. Last year the company revised that by about six months. Then in January it extended the schedule again, projecting the first flight at midyear and the first delivery for early 2009. The delays have been embarrassing for Boeing, which had been riding high on 787 orders—892 to date—while rival Airbus was mired in the two-year delay of its superjumbo A380 plane.

The 787 has been wildly popular because of the potential fuel savings of more than 20% made possible by lightweight carbon-fiber technology. But customers are growing restless because the delays require them to alter plans for their own fleets—sometimes making do with older planes that are costly to maintain and consume more fuel. Some say they are seeking financial compensation and replacement aircraft under the terms of their contracts. Boeing's Carson said it's too early to say how many customers would be eligible for penalty payments.

The carbon-fiber technology has presented a daunting challenge for Boeing engineers. If components of the plane are too heavy, the plane loses its energy efficiency. But if they are too light, the parts and even the entire plane might not be structurally sound. That was the case with the center wing box, the critical section of the plane where the wings are attached. It was found to be too light and needed to be strengthened. Engineers devised a patch for the first six aircraft; the seventh will have the redesigned wing box incorporated from the start.