Bloomberg News

Boeing 747-8 Hits ‘Horrendous’ Setback on Buyer’s Refusal

September 17, 2011

(Adds Cargolux comments starting in third paragraph.)

Sept. 17 (Bloomberg) -- Boeing Co. had to postpone next week’s inaugural delivery of the 747-8 freighter, a jet already two years behind schedule, after its initial customer refused to accept the first two planes.

Boeing had to cancel three days’ worth of ceremonies and events yesterday because of “unresolved issues” with Cargolux Airlines International SA, said spokesman Jim Proulx. The carrier was scheduled to fly its first load of freight on the new plane out of Seattle on Sept. 19 and take delivery of a second jet two days later.

Proulx declined to comment on the reason for the dispute, and Cargolux would only say today that there had been “contractual issues” that compelled its board, which met yesterday, to reject the planes.

The clash mars the arrival of the newest and biggest version of the jumbo jet that, with its iconic hump, has been Boeing’s marquis model since its inception in the 1960s. It also comes after numerous struggles at the company, including a three-year setback to its 787 Dreamliner, inroads into its customer base by Airbus SAS and a shift in its new-jet strategy.

“It’s horrendous,” Ken Herbert, an analyst with Wedbush Securities in San Francisco, said in an interview. “Just when you finally thought they were going to turn the corner, this happens.”

Setbacks

The 747-8 freighter won certification last month from the U.S. Federal Aviation Administration to enter commercial service, capping a two-year, $2.04 billion delay for Boeing’s biggest plane ever. Luxembourg-based Cargolux was to be the first to receive the jumbo jets, which feature new engines and a stretched upper deck and wings.

“We continue to work with Cargolux and look forward to delivering its airplanes,” Boeing’s Proulx said yesterday from Everett, Washington, where the jets are built.

Financing, secured through JPMorgan, has been put on hold, Cargolux, Europe’s largest freight-only carrier, said today.

“In the event that the issues cannot be resolved in a timely manner, Cargolux will source alternative capacity to fully meet customer demand and expectations ahead of the traditional high season,” the company said in a statement.

Qatar Airways Ltd. took a 35 percent stake in Cargolux in June and said it planned to start converting 20 Airbus SAS A330 jetliners into freighters next year to accelerate its expansion into logistics.

Trials Continue

Trials continue on Boeing’s 747-8 Intercontinental passenger model as crews test different systems than on the freighter, including climate control and airflow balancing. The first version of that plane is due to be delivered by the end of this year, and the model is scheduled to begin commercial service in early 2012 with Deutsche Lufthansa AG.

The setbacks to the model are due in part to the 787 Dreamliner. Engineers were diverted to work on the composite- plastic Dreamliner as struggles with the new materials and its production system caused what amounted to seven delays. Boeing now expects to deliver the first of that plane to Japan’s All Nippon Airways on Sept. 25.

Flight tests then revealed other problems with the jumbo jet, including flutter in the wings and buffeting around the wheel wells, which had to be resolved. And work on the new flight-management computer extended the length of testing, eventually forcing Boeing to scale back the system to avoid further delays. A software upgrade is planned later.

Leadership Issues

The 467-seat, $317.5 million 747-8 Intercontinental competes with Airbus’s 525-seat A380, which entered service in 2007, while the $319.3 million freighter has no commercial rival. Boeing has 114 orders for the plane.

In July, Boeing abandoned its preference to develop an all- new, narrow body jet and said it would instead offer new engines on the current 737. That mirrored a similar move by Airbus the year before that had helped the European planemaker rack up more than 1,000 orders for its upgraded A320neo in seven months.

The decision came as Airbus broke an exclusive arrangement between Boeing and American Airlines dating back to 1987 by selling the A320neo to American. Boeing announced the following month that it was replacing its top salesman and putting Ray Conner back in the post, in an expanded role.

“Clearly, there’s leadership issues all across the board,” Herbert said. “It’s been a very difficult couple of years. There’s so much capital on the sidelines waiting to get into the stock, and they just need to deliver these airplanes, but it’s always ‘next month, next month.’”

--With assistance from Natalie Doss in New York and Andrea Rothman in Paris. Editors: Sylvia Wier, Paul Tighe

To contact the reporters on this story: Susanna Ray in Seattle at sray7@bloomberg.net; Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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