Seattle: Still grappling with shortfalls in its supply chain and slow progress on the assembly line, Boeing Co. ended weeks of speculation by announcing the inaugural flight for its new 787 jetliner would be delayed up to three months, pushing delivery of the first plane into early 2009.
This is the third time the hot-selling airplane has been delayed, an embarrassment that has cast a shadow on the company’s credibility.
“I know our credibility is being tested on this program, and it is up to us to deliver on what we say we will do,” Scott Carson, chief executive of Boeing’s Seattle-based commercial airplane division, said in a conference call with analysts on 16 January.
After a six-month delay announced last October, Boeing had been aiming to start test-flying the new midsize, long-haul plane by the end of March and deliver the first one to Japan’s All Nippon Airways Co. by the end of the year.
The new schedule calls for test flights to begin by late June. The company did not say how soon in 2009 it believes it can start delivering the plane, which has won more than 800 orders so far.
One of the first key milestones for the first plane, turning on its power, has been delayed until early in the second quarter, said Pat Shanahan, general manager of the 787 program. After that, it will take two to three months to run all the ground tests needed before the plane can fly.
Carson said the delay will prevent the company from meeting its ambitious goal of delivering 109 planes by the end of next year. He said the company will spend the next few months analyzing the status of the program before specifying how much it is lowering that target.
Chicago-based Boeing, which builds its commercial jets in the Seattle area, has outsourced an unprecedented amount of the 787’s design and production to manufacturers scattered across the globe. Workers in the company’s widebody assembly plant north of Seattle have had to do a lot of so-called “traveled work” that suppliers were supposed to handle themselves. That problem has become more challenging than others the company has faced, including a shortage of small parts and the tiny fasteners that hold pieces of the plane together.
“We underestimated how long it would take to complete someone else’s work,” Shanahan said. “We designed our factory to be a lean operation. And the tools and the processes, the flow of material, the skill of the personnel are all tailored to perform last-stage high-level integration, check-out and test.
“We thought we could modify that production system and accommodate the traveled work from our suppliers, and we were wrong.”
Boeing has beefed up staffing and dispatched workers to factories throughout its supply chain to get the production problems under control.
Despite the problems, Carson said he remains confident the 787 program is fundamentally sound. “When we have tested the technology and its application to this new family of airplanes, our confidence has only increased,” he said.
Analysts have their doubts.
“Boeing is not going to be able to prove they have a handle on this thing until they get the plane into the air and are able to actually begin producing the airplane without any glitches,” a point the company won’t reach until the end of this year, said Scott Hamilton, managing director of the Seattle-area aerospace consulting group Leeham Companies LLC.
Boeing shares rose $2.01, or 2.6%, to $79.87 on 16 January, after losing about 5% the previous day after news reports that another delay was imminent. The company’s stock has fallen about 20% since last July, before the first delay was announced.
It was not immediately clear how many 787 customers would be affected by the latest delay. Last fall, the company said it was working on revised delivery schedules with about 15 customers. To date, Boeing said 55 have placed 817 orders for the plane.
Some analysts estimate Boeing faces as much as a few million dollars in penalty payments for every plane that is delivered late.
Australia’s Qantas Airways Ltd. said the delay would slow the international expansion plans of its budget subsidiary Jetstar, but would have no impact on the parent company’s earnings or its overall growth strategy.
Qantas, which has ordered 65 787s, said Jetstar originally planned to take delivery of its first 787 this August, but now expects that will not happen before May of next year. Geoff Dixon, CEO, said Qantas would be discussing penalty payments with Boeing in the coming weeks.
All Nippon Airways, which has ordered 50 787s, called the delay “extremely regrettable.”
“We will work with Boeing on the revised schedule and decide how to proceed from there,” the Japanese airline said in a statement sent via e-mail by Damion Martin, company spokesman.
Boeing said the delay’s impact on its 2008 earnings guidance is not expected to be significant. The company said it would update guidance for the current fiscal year when it reports fourth-quarter 2007 earnings on Jan. 30, and guidance for 2009, the first year it’s likely to be hit with substantial penalties, in late April.
Hamilton surmised that because Boeing has won so many orders for the 787, it could take a bigger financial hit than rival Airbus SAS did with its A380 superjumbo, which was delivered to its first customer last fall after nearly two years of delays.
The 787 is Boeing’s first newly designed jet since airlines started flying the 777 in 1995. It will be the world’s first large commercial airplane made mostly of carbon-fiber composites, which are lighter and more durable than more aluminum and don’t corrode like metals.
Boeing has promised it will be more fuel-efficient and cheaper to maintain and offer passenger comforts than comparable planes flying today.