Dreamliner, Where Are You?

Boeing confirms yet another delay in delivering its 787, this time for three months

by Stanley Holmes

Boeing's (BA) all-new 787 Dreamliner aircraft is facing additional delays. The company likely will face financial penalties for late deliveries as a result, news that drove its stock price down nearly 5% on Jan. 15.

On Jan. 16, Boeing confirmed that it has pushed back the first flight of the airplane from the end of the first quarter to "around" the end of the second quarter. Deliveries are now expected to begin in early 2009, rather than late 2008. The 787 team is wrestling with a myriad of technical and manufacturing challenges, which include continuing parts shortages and complications with the production process.

It isn't the first time Boeing has had to adjust its production schedule for the fuel-sipping 787, a complex and revolutionary plane that will be built with a body made entirely of fiber carbon, that is, plastic. This is the first time, though, that such delays have raised the specter of millions of dollars in penalty payments to the airlines that ordered the first 200 aircraft. As news of a potential delay began to spread on Jan. 15, Wall Street wasted little time selling off the stock. Boeing shares fell 3.81, or 4.7%, to close at 77.86 on the New York Stock Exchange.

Hinting at Problems With Suppliers

In a press release Jan. 16, Boeing said it will spell out the financial impact of the delays on Jan. 30, when it announced fourth-quarter earnings. The company said it does not expect a "significant" impact on its 2008 earnings guidance. It didn't say how 2009 guidance would be affected, except that it "continues to expect strong earnings per share growth" next year.

Scott Carson, president and CEO of Boeing Commercial Airplanes, hinted at the problems Boeing has encountered with some of its suppliers. "Our revised schedule is based upon updated assessments from the 787 management team of the progress we have made and the lessons we have learned to date. This includes our experience on the factory floor completing production work on the airplane that was originally intended to be done by our suppliers," Carson said in a statement.

Dreamliner sales have boomed, largely because of the jet's improved fuel efficiency. Chicago-based Boeing has announced orders for 817 Dreamliners from 53 airlines and leasing firms, pushing the list-price value of the program to $135 billion. However, airline executives and industry analysts have grown frustrated by continuous supply-chain missteps and other delays. Many airline customers privately have said they expected further delays and are willing to wait a bit longer because they want Boeing to get the 787 right. Most still believe the jet will be a big success.

The Airbus Effect

Boeing is trying to avoid copying the two-year delay that ensnared Airbus and its much larger A380 Super-Jumbo jetliner. What's more, further 787 delays could send some customers flocking to Airbus, which now has a much more credible lightweight, medium-size jetliner, the A350, to offer as an alternative.

If the 787's first flight happens in June, as is now planned, that would be nine months later than the original schedule of August, 2007. "Power-on," another key milestone, in which airplane power is turned on for the first time and engineers run through weeks of tests before the first flight, has been pushed out to March instead of the original late January or early February.

The most recent previous delay, announced in October, coincided with the removal of several Boeing executives overseeing the program. Boeing tapped Pat Shanahan, a vice-president of its missile-defense systems and a well-regarded operations and manufacturing executive, to fix the problems.

Several persistent problems have hampered assembly of the first aircraft and attempts to ramp up production. Of particular concern is the inability of some of Boeing's global supply partners to quickly master a steep manufacturing learning curve. One of the critical bottlenecks appears to be Global Aeronautica, a fuselage assembly center jointly owned by Alenia Aeronautica of Italy and Vought Aircraft Industries of Dallas. The companies' Charleston (S.C.) factory joins two 787 sections together. They are then flown to Boeing's Everett (Wash.) final-assembly plant in a converted 747 cargo plane. But the South Carolina plant has found it difficult to replicate the assembly process in a way that can meet Boeing's need to ramp up production by 2009, say sources.

Because of the recurring problems, analysts may greet any proposed solutions with skepticism. "Investors are likely to require clear signs that this is the last of the delays, which will take months to prove out," wrote Morgan Stanley (MS) analyst Heidi Wood in a research note. "A delay of first flight to June adds to the cost of up-tick in customer penalty payments."

Holmes is a correspondent in BusinessWeek's Seattle bureau .