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Boeing Dreamliner Faces `Inevitable' Seventh Delay, Analysts Say

Boeing Co. said it will redesign part of the software on the 787 Dreamliner’s electrical system and its power panels after an onboard fire two weeks ago halted flight tests.

The Dreamliner test fleet remains grounded in the meantime, and the company expects to complete in the next few weeks a new schedule for the plane’s certification and delivery, Boeing said in a statement yesterday.

A stray aluminum washer shorted out a power panel during a Nov. 9 flight, causing the blaze, said three people familiar with the matter, who asked not to be identified because the details hadn’t been released. Boeing said its inquiry concluded that the fire was “most likely caused by the presence of foreign debris” that caused a short circuit or electrical arc.

“Minor design changes” will be made to the Dreamliner’s power panels to ensure that stray materials can’t get inside, along with updates to the electrical system’s software to improve power distribution, Boeing said. The 787 is the first all-electric and composite-plastic airliner.

The jet is almost three years behind schedule after six delays as Boeing struggled with new materials, parts shortages, redesign work and a greater reliance on suppliers. The plane has been flying since December 2009 in tests toward certification for passenger service, which Boeing targeted for the first quarter of 2011.

‘Inevitable’ Delay

Before the electrical redesign work was reported, analysts said the plane would be delayed for a seventh time as months of testing remain before it can be certified for passenger use.

A postponement of as much as six months from the current delivery target of the first quarter of 2011 is already priced into Boeing stock, said Peter Arment, an analyst with Gleacher & Co. in Greenwich, Connecticut. Jefferies & Co.’s Howard Rubel in New York predicted an extension of less than three months, while Morgan Stanley’s Heidi Wood pegged the second half of 2011 for the setback with a worst-case scenario of 2012.

“There’s going to be some delay -- it’s inevitable,” Rubel said. He has a “buy” rating on Boeing shares.

The six Dreamliner test jets have been parked since the Nov. 9 fire, in which the affected aircraft lost its primary power and the crew had to evacuate on emergency slides after the plane landed in Laredo, Texas. Only a few flights were allowed afterward to get all of the planes back to Boeing’s Seattle hub.

‘Well Along’

The team Boeing sent to Laredo is “well along” in preparing to return the damaged plane to Seattle, Scott Fancher, the 787 program chief, said in yesterday’s statement. The company is developing a plan that it will present to the U.S. Federal Aviation Administration to enable the rest of the fleet to start flying again, he said.

The test fleet is based in Seattle, and the planes have to fly around the world in search of various weather conditions to pass the FAA’s requirements. With 847 advance orders, the 250- seat Dreamliner, which has an average list price of $178 million, is Boeing’s best-selling new aircraft.

Even after the jets are flying again, and without a major redesign, they still need to complete more than 700 hours of an expected 3,100 hours of testing for both engine types. One is made by General Electric Co. and the other by Rolls-Royce Group Plc.

Boeing must prove the plane’s extended-operations capabilities, its fuel-mileage performance, and its function and reliability, among other tests required by the FAA before the jet is certified. Boeing originally targeted May 2008 for entry into service.

Trimming Estimates

In the past week, Arment and others have reduced their estimates for 2011 deliveries of the Dreamliner. Arment now expects Boeing to deliver 17 of the jets next year instead of the 42 he had projected.

The expected drop in deliveries led some analysts to lower their profit estimates for next year, including a 10 percent cut by Merrill Lynch’s Ron Epstein, who now forecasts Boeing will post earnings of $4.05 a share in 2011. Epstein said he doesn’t expect the 787 program to turn profitable until 2013, a year later than his previous prediction.

Boeing is building about two Dreamliners a month now, storing them around its Everett factory until they’re certified. The latest schedule called for production to ramp up starting next year and increase to 10 a month in 2013.

Depending on the length of the delay, which is “all but assured” and may be substantial, Boeing may have to take a charge against earnings this quarter, said Kenneth Herbert, an analyst with Wedbush Securities in San Francisco. He wrote in a Nov. 22 note that he expects Boeing to deliver 14 Dreamliners next year, down from his previous estimate of 22.

Time for Adjustments

Boeing rose $1.81, or 2.8 percent, to $65.41 at 4:15 p.m. in New York Stock Exchange composite trading yesterday. The shares have dropped 6.8 percent since the day before the fire.

The company may use the opportunity to reassess the full program and incorporate extra time for other adjustments, including the faulty horizontal stabilizers that Boeing machinists are repairing, Herbert and other analysts said.

Boeing in June found gaps in the stabilizers, the small wings on the tail that were built by a Finmeccanica SpA unit in Italy. Boeing has had to fill those in with metal and composite materials.

“Now’s the perfect opportunity, if they know the margin was already tight because of the stabilizers, to just throw it all in and get that buffer back,” Herbert said.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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