Latest Delays With Boeing's Dreamliner Puts Program Two Years Behind Schedule

By William Patalon III
Executive Editor

Money Morning/The Money Map Report

The Boeing Co. (BA). is pushing back the schedule of its troubled 787 Dreamliner jet program by about six months as it works to unwind delays caused by the recently concluded union-machinists strike, and by thousands of improperly installed fasteners on the first couple of jetliners on the production line. This puts the high-profile airliner program about two years behind schedule.

The Chicago-based aerospace giant also has unveiled a series of management changes it says will improve supervision of both supply-chain management and production quality at improving oversight of supply-chain and quality problems that led to delays on all of Boeing's jet programs in recent months.

With the move, the fuel-efficient jet's first flight has been shifted into the second quarter of 2009 and first delivery into the first quarter of 2010. Prior to the strike that halted much of the company's commercial airplane work from early September into November, the 787 was to make its first flight late in the fourth quarter of 2008. First delivery was slated for the third quarter of 2009.

“Our industry team has made progress with structural testing, systems hardware qualification, and production, but we must adjust our schedule for these two unexpected disruptions,” said Scott Carson, president and chief executive officer of the Boeing Commercial Airplanes group.

“We're laser focused on what needs to be done to prepare for first flight," said Pat Shanahan, Boeing’s vice president in charge of the 787 program. “We will overcome this set of circumstances as we have others in the past, and we understand clearly what needs to be done moving forward.’

Included in the preparations for first flight, Shanahan said, are finalizing and incorporating remaining engineering changes and completing systems testing, qualifications and certification, Boeing said in a company announcement.

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, 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 Irelandreported.

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.

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 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 had to figure out how much time they should build into the airplane’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:

Editor's Note: The Boeing Co. has not specified which of its business units might see job cuts next year. A previous version of this story mistakenly specified a business unit.)

GENEVA -- The global airline industry, which has ordered record numbers of jets from Boeing and Airbus during the past three years, is facing the worst revenue crisis since the end of World War II, the International Air Transport Association warned Tuesday.

Only U.S. carriers may make money in 2009, and that's because they have already drastically cut capacity.

"The outlook is bleak," Giovanni Bisignani, IATA's director general, told reporters during an all-day series of briefings at IATA's headquarters in Geneva.
IATA represents about 230 international airlines making up 93 percent of scheduled international traffic.

"The chronic industry crisis will continue into 2009 with $2.5 billion in losses," Bisignani said. "We face the worst revenue environment in 50 years."
For The Boeing Co., the consequences could be widespread. Orders are likely to be way down in 2009, and the company recently announced that it anticipated layoffs next year.

Industry analysts are predicting that more Boeing and Airbus orders will be deferred and some canceled because airlines won't be able to find financing to pay for planes on order. Even for airlines, loans are harder to find because of the worldwide credit crunch.

On the same day that IATA was making its dire predictions here, China's Civil Aviation Administration announced that it was urging its airlines to cancel or postpone jets scheduled to be delivered in 2009 because of weakening travel demand.

Boeing and Airbus had both previously forecast that China and India would be buying more new planes over the next 20 years than other regions of the world, and China has hundreds of planes on order from both manufacturers.

Worldwide, airline losses this year will be around $5 billion, of which about $3.9 billion will be from airlines in North America, according to IATA. It predicted that losses would total about $2.5 billion in 2009. The figure would be much worse if not for those same North American airlines.

U.S. airlines were hit hard by the high cost of fuel earlier this year. To cope, they cut capacity early on.

"As a result, they will post a $300 million profit (in 2009), but this is still less than 1 percent of revenue," Bisignani said. "All other regions will see red in 2009," he added.

That includes Asia and the Middle East, where the majority of the Boeing and Airbus widebody airplane orders have come from in the past three years.

Emirates, for example, is the biggest customer by far for the Airbus A380, the biggest commercial jet.

Airlines in the Middle East will see losses double to $200 million in 2009, according to IATA.

"Their challenge is to match capacity to demand as fleets expand while traffic growth slows, particularly on long-haul connections," Bisignani said.
IATA forecast that Asia Pacific losses would more than double to $1.1 billion next year.

"Japan is in recession, China is suffering from a major drop in export markets, and India's carriers, already struggling with high taxes and insufficient infrastructure, can expect a drop in demand from last month's tragic events," Bisignani said in reference to the terrorist attack in Mumbai.

European airlines will see their losses increase tenfold to $1 billion in 2009, IATA forecast. And Latin American carriers will double their losses next year to $200 million.

Unlike international airlines in Asia, Europe and the Middle East, the legacy U.S. carriers held off ordering large numbers of new, more fuel-efficient jets to replace older planes.

That may be a bright spot for Boeing if and when those U.S. carriers place orders again.

But the revenue environment that global airlines face is worse than what they experienced after the 9/11 attacks in 2001, according to IATA.

During that last downturn, which until now had been the industry's worst ever, Boeing slashed production and eliminated tens of thousands of commercial airplane jobs.

After the cycle turned, Boeing began hiring again as production rates increased, but the Chicago-based company has sought to avoid the wild employment swings of the past and has not been hiring at the same pace as it once did when times were good.

That means Boeing will not have to cut as many workers during this downturn.

Airline industry revenues are expected to decline to $501 billion in 2009, according to IATA. That's off $35 billion from the $536 billion in revenues forecast for 2008.

This drop in revenue is the first since the two consecutive years of decline in 2001 and 2002, when revenue declined only about $1 billion as a result of the 9/11 downturn.

IATA forecast that global passenger traffic would drop 3 percent in 2009. That would be the first decline since 2001, when the terrorist attacks slowed global air traffic by 2.7 percent.

Bisignani said a key indicator of just how bad the global recession will be is the steep drop in air freight revenue.

That's bad news for Boeing, which is likely to see a slowdown in orders for its new 777 freighter, which will enter service early next year with Air France, and for its 747-8 freighter, which is in development.

The Asia Pacific region has about 45 percent of the international cargo market.

"Air cargo (makes up) 35 percent of the value of goods traded internationally," Bisignani noted. "The 7.9 percent decline in October is a clear indication that the worst is yet to come -- for airlines and the slowing global economy."

But Brian Pearce, IATA's chief economist, said the gloomy airline picture for 2009 could have a silver lining -- for airline passengers.

Fares are likely to drop as competitive pressure intensifies, he said.

The International Air Transport Association provided transportation for the Seattle P-I.
P-I aerospace reporter James Wallace can be reached at 206-448-8040 or [email protected]. Read his Aerospace blog at
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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.

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