Boeing Says Sixth Delay on 787 Dreamliner Jet Won't Require Charge in 2010
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Boeing Co. is unlikely to take a charge tied to the delay of the 787 Dreamliner until next year’s first quarter, because the postponement’s cost is included in its plan, Chief Financial Officer James Bell said.
Boeing last week postponed delivery of the first 787 Dreamliner for the sixth time, pushing the schedule into the middle of the first quarter of 2011 and more than 2½ years beyond its original timetable. Boeing, based in Chicago, said Aug. 27 the latest delay wouldn’t affect its projected financial performance.
There is “room in the cost base,” Bell said during a presentation today at the Morgan Stanley Global Industrials Conference in New York that was broadcast on the Internet.
Customers are still interested in buying the last three of six 787 test jets, so Boeing doesn’t expect to have to take another charge against those planes, Bell said. The company took a $2.5 billion charge a year ago after determining that the first three jets had no commercial value because of all the modifications that had to be done during the development and testing process.
The planemaker has struggled with new materials, parts shortages, redesign work and a new production system that relies more on suppliers to build the plastic-composite airliner. The latest postponement stems from Rolls-Royce Group Plc’s inability to supply an engine for flight tests combined with the effect of other delays including improperly installed tail parts, Bell said.
“It was the aggregated impact,” Bell said. “The last straw on the camel’s back has been the issue we’re dealing with Rolls with on the engine.”
Rolls-Royce said the delay wasn’t related to a 787 engine failure on a test bed in Derby, England, which forced it to shut the site for repairs.
Rolls “is working it pretty hard,” Bell said. “Mid-first quarter is appropriate.”
While Boeing will continue to consider acquisitions on the military side of the business, the commercial business “has its hands full,” Bell said when asked if Boeing would consider purchasing Finmeccanica SpA’s Alenia Aeronautica.
Alenia, as it is known, has been a “good supplier” on other aircraft, so Boeing is working through “quality issues” in 787 sections built by the Italian company, including problems discovered with the tail, Bell said. The planemaker isn’t interested in buying Alenia, he said.
Alenia Factory Purchases
Boeing last year bought some 787 factories partially owned by Alenia and has said this year that it may take more work back from suppliers amid complications with the new production system.
The company is evaluating when or whether it should be able to raise the production rate on the 737 model to as high as 40 aircraft a month, including whether such a move would require capital expenditures, Bell said. Boeing likes to keep production just below peak demand so it doesn’t wind up spending too much when customers later want fewer aircraft, he said.
Boeing in June announced a production boost for its best- selling 737 to 35 a month starting in 2012, and a further increase may prove too expensive, Bell said.
“As we move to 40, there are more concerns that capacity will have to be increased. We’re trying to work our way thorough to produce airplanes more efficiently and not incur those expenses,” Bell said. “We want to make sure this market is sustainable.”
The company still plans to decide whether to offer an upgraded engine or develop a replacement model on the narrowbody 737 by year-end or sooner, he said.
Boeing is also evaluating new or upgraded versions of its 777 model and won’t proceed with two major development programs at once, he said.
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