By William Patalon III
Executive Editor
Money Morning/The Money Map Report
The Boeing Co. (BA) may further delay first deliveries of its flagship 787 Dreamliner by at least six months – meaning the jet will enter service more than two years later than was originally projected – because of the recently concluded strike by union machinists and several other problems, The Wall Street Journal reported.
Sources told the Journal that the first deliveries of the fuel-efficient jet might not occur until the summer of 2010. Boeing's most recent schedule called for initial deliveries in the third quarter of 2009. Officials with the Chicago-based aerospace giant are expected to announce the newest delays later this month, after making certain of the new timetable, the newspaper said.
A Recent Record of Costly Delays
Boeing has long prided itself for delivering new aircraft on time. That’s why escalating problems with the highly complex Dreamliner – a fuel-efficient jetliner that can carry between 225 and 300 passengers – have turned what could have been a public-relations marvel into an embarrassment for Boeing.
This newest delay would represent the fourth time that the company has had to tell customers holding orders for almost 900 of the jets that the delivery schedule will be pushed back. With each new delay, Boeing executives and marketing officials have assured investors and customers alike that the new delivery date was set in concrete – only to later be forced to set that date back again because the company was surprised by a new set of problems.
One of the problems with the program is that the Dreamliner is being made of highly sophisticated materials, and is being constructed by a network of suppliers that’s truly global in nature. The fact that so much of the aircraft is outsourced means Boeing is encountering a whole new set of logistical and technical problems that it’s never before encountered.
The company has attributed part of the delay to the 58-day strike by 27,000 of its unionized workers that ended in early November. The workers ratified a four-year deal and returned to work, but the cost was high.
Boeing delivered just four jetliners in November, even after the resolution of a strike that paralyzed the airplane-maker's commercial aircraft business during the two previous months, Forbes.com reported Friday. That compares with five airplanes delivered in October – when the strike with the machinists was at its peak – and 12 in September – two of them before the strike began.
Boeing delivered 36 planes per month in August and July. The company also delivered 35 jetliners in November 2007, the company said on its Web site. Analysts say that Boeing usually delivers about 40 jetliners a month.
A New Role
For the Dreamliner program, Boeing is labeling itself as a “systems integrator” – rather than as a manufacturer, as it historically has been known – because of how thoroughly Boeing has outsourced production around the world.
In fact, in return for investing more upfront, and accepting a share of the high development costs, suppliers were able to get major sections of the Dreamliner to build. Boeing itself is responsible for only about 10% of the jet by value – chiefly the tail fin and the final assembly. The rest of the work is being done by 40 “partners” around the world: The wings are being built in Japan, while factories in Italy, South Carolina and Kansas assemble the bulk of the carbon composite fuselage. The landing gear is made in France.
Once completed, the components are loaded aboard a specially modified Boeing 747 cargo jet and flown to Everett, Wash. for the final assembly.
Boeing says that when the system is up and running, it will eventually be able to snap together Dreamliners in as little as three days, in a manner similar to assembling plastic model airplanes, Finfacts Ireland reported.
Sources told the Journal that Boeing has been meeting with its partners and suppliers on the jet program in an attempt to once again understand all the new challenges that have sprung up in part because of the big share of the program work that the company had outsourced.
A person who has been involved in the discussions told the newspaper that “there is no question” that the Dreamliner will be delayed further. “The real issue right now is that Boeing wants to make sure it has a believable date before going back to the customers with more bad news.”
Customers are getting quite irritated by the delays. In a recent interview, Virgin Atlantic Airways Ltd. Chief Executive Steve Ridgeway conceded that he’s “pretty fed up. We’ve got no clarity from Boeing.”
Virgin was originally due to receive its first Dreamliner in 2011, but Ridgeway said "we don't know how long the delay is now."
The Dreamliner, Ridgeway said ruefully, is “the world’s rarest airplane.”
A Boeing spokesman declined comment yesterday (Thursday) about any possible new Dreamliner delays, telling the Journal that the company is “currently reviewing the schedule” and would have an announcement at a later date.
There’s probably a lot more to review than the company would like to admit. Sources close to the program say that Boeing has encountered surprises on an all-too-regular basis; the problems range from “minor annoyances” to issues that require notification of Boeing Chief Executive W. James McNerney Jr. at the company's headquarters.
A key area of concern: The continuing difficulty program participants are having as they try to work out software “bugs” in the millions of lines of computer code that run the airplane's various systems, including cockpit flight instruments to the electric brakes required for stopping as the planes taxi or land.
Suppliers who were having trouble delivering completed sections of the airplane to Boeing have worked through the worst of their problems, but some officials at Boeing are still concerned about the ability of suppliers to turn out sufficient parts for seven or more airplanes a month.
Scheduling Uncertainty Remains
People familiar with the program said that Boeing managers are still unsure how much time they should build into the plane's schedule. Not only must Boeing find a way to produce the airplane reliably, it must also allow the Federal Aviation Administration (FAA) adequate time to certify the plane as safe to fly. That process alone could take as much as a year, say these people.
Virgin Atlantic’s Ridgeway agrees, recounting how his airline was also the first recipient of a new model jetliner from Boeing rival Airbus SAS – which went through the same sorts of delays and teething problems. The Airbus A350, which was delayed because of problems the European aircraft manufacturer had with its A380 Super jumbo, isn't expected to be launched until 2013 – if not later. Airbus is expected to deliver the first A380 next week to Singapore Airlines Ltd. It is a double-decker plane that can seat more than 550 passengers and is designed for long-haul routes.
For that reason, Ridgeway says he knows that Boeing’s Dreamliner problems extend beyond the slipped delivery date.
A lot of attention has been focused on when Boeing will deliver its first Dreamliner, "but nobody's talking about production run-rates" or problems the plane may encounter when it goes into service, Ridgeway said in the Journal interview. “Just getting the first ones delivered to a handful of airlines isn't the end of the story.”
Boeing said last month that it was adding as much as 10 weeks to the delivery dates for all 3,734 jetliners it had on order to account for the International Association of Machinists and Aerospace Workers' strike, which shut Boeing's Seattle-area assembly plants for the better part of September and October. The company acknowledged that the strike made it impossible for the first Dreamliner to make its maiden flight before the end of the year as planned, but it did not alter the Dreamliner schedule.
As has been the case with delays encountered by arch-rival Airbus, Boeing has discovered that delays in the Dreamliner program are causing other development programs to slide – including a key one to update its 747 jumbo jet. Last month, Boeing said a new version of the four-engined jetliner – known for the distinctive hump on the top of its fuselage just behind the cockpit – would be as much as nine months late entering the market, in part because engineering resources were being gobbled up by the Dreamliner, the Journal said.
News and Related Story Links:
The Wall Street Journal:
Boeing Jet Faces Delays in the Wake of Walkout.
Money Morning News Analysis:
Boeing Machinists Strike Will Delay Dreamliner Jetliner Test Flight Until the New Year, Company Says.
Money Morning News:
Boeing Union Workers Ratify Four-Year Pact, Ending Eight-Week Strike.
FinFacts Ireland:
Boeing delays launch of 787 Dreamliner; Raises questions on model where it is only responsible for 10% of manufacturing value.
Forbes:
Boeing Delivered four commercial aircraft in November.
Money Morning News Analysis:
Boeing Machinists Strike Will Delay Dreamliner Jetliner Test Flight Until the New Year, Company Says.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.