On-Time 787 Delivery? Dream On

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Airbus Delay Had Provided an Opening

Even though Boeing's business has become more diversified over the past decade, the commercial airplane division still drives the stock. And investors are spooked by the ghost of manufacturing disasters past. In 1997, after refusing to disclose mounting production problems, Boeing revealed that it would have to stop two production lines to catch up on behind-schedule work, pay millions in late delivery fees, and book a one-time charge of $2.5 billion. Then there's Boeing rival Airbus, which unveiled a stunner of its own last October—a two-year delay in its A380 super-jumbo jetliner. That's projected to knock more than $6 billion off parent company European Aeronautic Defence & Space's (EAD.PA) bottom line through 2010.

Such memories haunt Boeing executives. If mounting delays had gone undisclosed, McNerney's position would have become increasingly uncomfortable. When he took over as Boeing CEO in July, 2005, he promised a more open and transparent company following a series of scandals that had plagued the planemaker. What's more, Boeing commercial airplane execs had vowed that the next time it built a new jetliner, it would never repeat the mistakes of the past. And Boeing has been more forthcoming than in the past, admitting delays to earlier test flight dates due to higher-than-anticipated amounts of uncompleted work and problems with the flight-control software system that are now largely resolved.

Airbus' delay debacle in 2006 with the A380 gave Boeing an opening to gain a competitive edge. When Airbus was late delivering the A380, Boeing execs wanted to prove to customers that it could deliver a more complex and revolutionary airplane faster and cheaper than its key rival—and on time. The Dreamliner is that airplane. And Boeing was tantalizingly close to fulfilling its promises. The first commercial jet made out of lightweight carbon fiber promises airlines a 20% savings in fuel compared with similar-sized aircraft and a 10% improvement in overall operating economics. The 787 program has set new sales records. Boeing has firm orders for 710 of the ultra-modern, twin-engine aircraft. The Dreamliner has been the most successful commercial aircraft launch ever, with a backlog of $110 billion.

All-in-One Software Issues

Now it must contend with integrating the system software that controls navigation, fuel systems, air data, electric power switching, and a host of other capabilities. "It's a big integration task to do for the first time," says an executive whose company is one of the systems suppliers. In the past, each of these functions came in a separate black box, and each had its own computers and software systems. But that proved cumbersome and heavy. So Boeing came up with a revolutionary new architecture that aims to integrate the different software functions into one central computing resource, built by Smiths, now a subsidiary of General Electric (GE).

The new system saves weight and will be more efficient. But the challenge is to integrate the different software functions into one processing unit just like how Microsoft (MSFT) integrates different software programs into Windows Office. Unlike Windows, though, engineers have to ensure each software system operates independently, so if the pilot opens up the navigation software, the plane will navigate. Blue screens, or software crashes, are simply unacceptable. "They are not going to fly the first airplane until they prove out the software in systems integration," the executive said. "It's as big an issue as any."

Finally, Boeing still has to put the first six Dreamliners through what execs admit is a shortened but demanding Federal Aviation Administration flight-test program. Vice-President Michael Bair acknowledged the compressed flight-test schedule of about six months, vs. 11 months for its 777 jetliner, leaves virtually no margin for error if the test uncovers a major performance glitch requiring redesign or retesting. No new plane in the history of commercial jet aviation has sailed through a flight test without snags that set the program back weeks or months. "We are eating into our buffer," Bair said at a September press conference.

"Still a Killer App"

Airline industry executives are willing to be patient, up to a point. "The question is how long the delay would be," says John Pleuger, president of International Lease Finance in Los Angeles, the world's largest aircraft leasing company and Boeing's biggest Dreamliner customer, with 74 orders. "But we've always told Boeing that it's more important to get it right."

In the end, what really matters is whether the performance of the Dreamliner matches the promise. "If the Dreamliner performs as advertised then it's still a killer app," says Richard Aboulafia, aerospace analyst at Teal Group. "These delays will be remembered with a shrug and the usual sense of jaded nostalgia."

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Holmes is a correspondent in BusinessWeek's Seattle bureau .