Defense/Aerospace Industries

[DewDiligence]

Boeing Faces Fresh Test With Delayed 747-8

http://online.wsj.com/article/SB20001424052748703615904575053630261059908.html

›Latest Redesign of 40-Year-Old Jumbo Jet, Plagued by Delays and Mounting Costs, Has Been Slow to Win Orders

By PETER SANDERS
FEBRUARY 9, 2010

Boeing Co.'s revamped 747 took off on its maiden flight Monday. But the new jetliner still has been slow to attract orders as the company again redesigns a successor to a plane that has been flying for 40 years.

Known as the 747-8, the plane is the largest commercial jet Boeing has ever built. But throughout its development the aircraft has been mostly overshadowed by the 787 Dreamliner, the company's new cutting-edge plane that is designed to be lighter and more fuel efficient than other commercial aircraft in its class.

Boeing has struggled as it developed both aircraft; the Dreamliner is more than two years behind schedule, while the 747-8 is about a year late.

The first test flight, which was delayed slightly by fog at Paine Field, north of Seattle, marks the beginning of a rigorous testing regimen the aircraft now must undergo to receive certification from the Federal Aviation Administration.

The Chicago-based company hopes to deliver the first 747-8 by year-end. But the company has had a hard time lining up customers, with its passenger version caught between Airbus's A380 and Boeing's own 777.

Boeing has 76 orders for the jet configured as a cargo hauler, the first of which is expected to be delivered in the fourth quarter to Luxembourg's Cargolux Airlines International SA.

A passenger version, which can carry up to 467 people in three classes, will begin deliveries at the end of next year. But Boeing has only 32 orders for that version, from just two airlines and a handful of unidentified VIP customers. By contrast, the Dreamliner has more than 850 orders, despite its numerous delays.

The planes carry a list price of more than $300 million, though airlines typically negotiate discounts.

Rising costs for the 747-8 have weighed on Boeing's balance sheet. Early last year, Boeing said the program was unprofitable, and the company in October took a $1 billion write-down on the jet. [That’s one thing Boeing is really good at, LOL.]

It is unclear when or if the company will make money on the aircraft. For a time, senior company executives questioned whether the program would continue.

Nevertheless, Boeing executives say they are optimistic about the 747-8's viability. [What would one expect them to say?] "It's sort of a full-court press on all elements of the business equation," Jim McNerney, Boeing's chairman and chief executive, said on an earnings conference call last month. Many airlines that fly the older 747-400 are "going to be turning over their technology in the next decade," he said.

The 747, with its humped upper deck, is Boeing's most recognizable plane. When Boeing began looking at another update of the 747, which first began service 40 years ago, it considered building a big new version to compete directly against the A380 double-decker plane built by the Airbus unit of European Aeronautic Defence & Space Co. But Boeing was unable to gain traction with airline customers for that concept.

By 2005, Boeing decided on the 747-8, which would boast a slightly longer fuselage than the 747-400, as well as greater fuel efficiency, a new wing design and use the same engines and cockpit set-up as the Dreamliner.

But as Boeing began to redesign its jumbo jet, the price tag began to soar. Updating the 747 airframe with new technology, working off blueprints from the 1960s, took longer than expected, adding to costs [LOL].

The company also was delayed by a two-month machinists' strike in 2008, as well as the need for Boeing to transfer engineers from the 747-8 program to help fix the Dreamliner.

Once deliveries of the 747-8 begin this year, Boeing still will face headwinds.

The air-cargo market has recently showed nascent signs of recovery after a steep drop off during the global recession. But scores older cargo planes sit parked around the world, waiting to be put back in service if demand recovers.

In addition, airlines can also convert older passenger 747s into cargo planes, making it harder for airlines and leasing companies to justify buying a new ones.‹