Boeing Struggles with Dreamliner Delays; Struggles to Fend Off Airbus

By Jason Simpkins
Associate Editor

The Boeing Company (BA) announced further delays in the production of its 787 Dreamliner yesterday (Wednesday), but there still may be ample opportunity to bury its competition, notably Airbus SAS.

The Dreamliner is Boeing's most successful new airplane program in terms of sales. It ranked second in commercial orders last year, behind the 737 narrow-body model.

Made almost entirely out of plastic, the plane will use 20% less fuel than today's similar mid-sized airplanes. It will also travel at speeds equal to the fastest wide-body aircraft and provide airlines with more cargo and revenue capacity according to the company’s web site.

So far, Boeing has landed 817 orders for the model, valued at more than $120 billion.  Unfortunately, production has suffered repeated setbacks. The 787’s first test flight, originally expected to take place in August 2007, has been moved all the back to June 2008.

In September, Boeing assured its customers and shareholders that delays would not affect scheduled deliveries. Boeing reneged on its promise a month later, saying deliveries would be delayed six months. But yesterday, Boeing pushed delivery dates back even further, from December 2008 to early 2009.

“We are deeply disappointed by what this delay means for our customers, and we are committed to working closely with them as we assess the impact on our delivery schedules,” Scott Carson, chief executive of Boeing’s commercial aircraft business, said in a statement.

Boeing shareholders have been disappointed as well, as the stock dropped more than 5% Tuesday, as investors anticipated the announcement.

The company is on the hook for the delivery of 109 Dreamliners in 2009. Continued production delays could smother the expansion plans of major airlines counting on the planes’ delivery and cost Boeing millions of dollars in penalty payments.

“Investors are likely to require clear signs that this is the last of the delays, which will take months to prove out,” Morgan Stanley (MS) analyst Heidi Wood wrote in a research note. “A delay of first flight to June adds to the cost of up-tick in customer penalty payments.”

Meanwhile, Airbus, which suffered setbacks from production and design delays associated with its A380 superjumbo jet and A350 widebody, is regrouping to again challenge the world’s largest airplane manufacturer. And instead of taking advantage of Airbus’ tarnished reputation when it had the chance, Boeing flew nose-first into delays of its own, leaving its competitor an opportunity to fight its way back.

Airbus actually topped Boeing in 2007 deliveries, and it narrowed the disparity between orders as well. Chief Executive Officer Tom Enders announced yesterday that Airbus sold 453 aircraft in 2007, 19 more than the year before and 12 more than Boeing. However, net orders totaled 1,341, short of Boeing’s 1,413.

Regardless of this success however, it may not be too late for Boeing to exploit potential weaknesses within Airbus. While orders for the company are up 80%, Airbus says it will likely post a loss for 2007, resulting from production delays and a weak dollar. [Industry purchases are denominated in dollars, which means the Toulouse, France-based Airbus is hurt by the exchange rate.]

Airbus has already put into action a plan to cut $3 billion from its annual costs by 2010 to improve its bottom line. The company will cut jobs and consider the sale of six manufacturing plants, Bloomberg News reported.

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