Boeing 787 Dreamliner's Biggest Risk Is Rolls-Royce Engine, JPMorgan Says

Boeing Co. could see the biggest risk to the development of its 787 Dreamliner jet coming from engines supplied by Rolls-Royce Group Plc, according to Joseph Nadol, an aerospace analyst at JPMorgan Securities LLC.

In the seven weeks since the blowout of a Trent 1000 engine on a Rolls-Royce test bed, neither Chicago-based Boeing nor Rolls-Royce has determined whether it was caused by the engine design or the way it was tested, Nadol wrote in a note today.

“Both companies express confidence that they can work through this issue -- Rolls more so than BA,” Nadol said. “A defect requiring a major redesign may be unlikely. However, the impact of such a problem would be severe, and the Trent engine therefore looks like the biggest risk for the 787.”

Last week’s disclosure of a power surge on a Rolls-Royce engine on a test 787 adds to the uncertainty, said Nadol, who rates Boeing as “neutral.” Boeing said it parked one of its five Dreamliner test jets while crews replace a Trent 1000 engine that experienced the surge before takeoff on Sept. 10.

Boeing declared its first three test 787s weren’t fit for sale to customers, and it announced a $2.5 billion charge. Nadol, who is based in New York, said he was “increasingly concerned” that Boeing also wouldn’t be able to sell three new test aircraft, boosting those costs.

Photographer: Simon Dawson/Bloomberg

A visitor photographs inside the Rolls-Royce Plc engine of a Boeing Co. 787 Dreamliner airplane on the second day of the Farnborough International Airshow. Close

A visitor photographs inside the Rolls-Royce Plc engine of a Boeing Co. 787 Dreamliner... Read More

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Photographer: Simon Dawson/Bloomberg

A visitor photographs inside the Rolls-Royce Plc engine of a Boeing Co. 787 Dreamliner airplane on the second day of the Farnborough International Airshow.

Replacement Engine

A replacement engine has been sent to New Mexico, where the power surge occurred on a test plane, Tom Brabant, a Boeing spokesman, said today in a telephone interview. Testing resumed over the weekend, he said.

A spokesman for London-based Rolls-Royce wasn’t available for comment. Rolls-Royce competes with General Electric Co. to build engines for the Dreamliner. The first 787 with GE-built engines made its maiden test flight in June. The first four test jets were equipped with Rolls-Royce engines.

Nadol said the leadership change to run the 747-8 jumbo-jet program “suggests that Boeing is still getting its arms around the new schedule and potential financial impact of the latest delay” on the plane.

In August, Pat Shanahan replaced Mohammad Yahyavi as head of the program, a month after Chief Executive Officer Jim McNerney said workmanship and design issues put the 747-8 at higher risk of not being delivered on time than the 787. The first of the revamped jumbo jets may not reach its buyer, Cargolux Airlines International SA, until 2011, Boeing has said.

Nadol said demand for Boeing’s 737, the world’s best- selling airliner, is “solid” with a backlog of more than 2,000 planes. That represents more than four years of production based on the rate Boeing announced last week, Nadol wrote.

Boeing rose 77 cents, or 1.2 percent, to $63.72 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have gained 18 percent this year.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Juliann Neher in Washington at jneher1@bloomberg.net

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