Boeing's 787 Encounters Flight Delays

Boeing pushes back the Dreamliner's maiden voyage but vows it can speed up flight testing and make deliveries on time

by Stanley Holmes

Boeing's (BA) decision to delay the first flight of its new fuel-sipping 787 Dreamliner another two months acknowledges the enormous challenges of assembling the world's first composite-based commercial jetliner. Executives insist that the 787 will be delivered on time, and that such a pushback would not be fatal to the new airplane program, sales of which have set new records. Indeed, most veteran airline execs and investors have long anticipated a delay. The challenge, if it happens, is to keep it brief.

The first flight of aircraft No. 1 would likely occur between mid-November to mid-December—about three months behind the original schedule. Boeing execs on Sept. 5 blamed the delays on higher-than-anticipated uncompleted work on the first airplane, caused partly by a serious fastener shortage. They also acknowledged that completing the coding of the complicated flight-control software has taken much longer than they had originally anticipated. "We have a lot of challenges and a lot of work ahead of us," said Michael Bair, the Boeing executive who directs the 787 program.

No Margin for Error

Despite the additional delay to the start of the flight-test program, Bair insisted that Boeing could still deliver its first 787 on time in May, 2008 to All Nippon Airways. He acknowledged the compressed schedule—about 6 months vs. 11 months for the 777 jetliner—leaves virtually no margin for error if the flight test uncovers a major performance glitch that would require some redesign. "We are eating into our buffer," Bair acknowledged to reporters and financial analysts during the update. "As this gets more and more compressed, we are eliminating time to deal with troubles that may come up. It's really tight."

This latest delay could erode support that investors and airline customers had placed in Boeing since the launch of the 787 program nearly five years ago. But it's still far too early to know how airlines will react. Boeing Commercial Airplane Chief Executive Officer Scott Carson said a one- to three-month delivery delay will not carry financial penalties. And privately, many senior airline and leasing executives said they were anticipating some delays. So far, record sales speak volumes for the Dreamliner. Aeroflot, Russia's flagship carrier, just finalized the sale of 22 787-8 Dreamliners, valued at a total of $3.6 billion at list prices. Boeing now has 706 firm orders from 48 airlines and leasing companies, creating a backlog worth more than $100 billion.

Boeing also has going for it a more open dialogue with investors and the media. Carson and Bair have been fairly transparent about acknowledging potential glitches as they've been discovered. But this form of airplane glasnost is about to be tested. Boeing also has insisted on pushing an accelerated design and production schedule that have left experts wondering if the company could pull it off. "The firm now faces a significant challenge meeting first delivery in May, 2008 and we believe that there can be virtually no buffer room left in the test schedule from here," Bank of America (BAC) analyst Robert Stallard wrote in a research note.

Wall Street Is Unperturbed

While it remains unclear if Boeing will delay the first deliveries, the potential for such adverse financial impact is now a real possibility. The announcement of the latest delay, which had been expected after rumors surfaced over the weekend, sent Boeing shares down nearly 3% on the New York Stock Exchange. But the shares later recovered, regaining nearly 2%, to finish trading at $97.14.

Investors now appear to be betting that Boeing can minimize any potential financial fallout even if the initial deliveries are delayed. "I expect Boeing will have a hard time staying both on schedule and on budget even though it still may be possible," Lehman Brothers (LEH) aerospace analyst Joseph Campbell told BusinessWeek. "Despite this, I don't expect it will be so bad that the stock will be killed."