Defense/Aerospace Industries

[DewDiligence]

Boeing Revises Dreamliner Schedule for Seventh (!) Time

[With each additional delay in the delivery schedule, BA incurs financial penalties in certain customer accounts that the company does not break out for investors. I’m surprised the stock is doing as well as it is.]

http://www.bloomberg.com/news/2010-11-25/boeing-revises-dreamliner-schedule-grounds-test-fleet-after-on-board-fire.html

›By Susanna Ray and Andrea Rothman - Nov 25, 2010

Boeing Co. said it will revise the program schedule of the 787 Dreamliner as it alters some software and power-distribution panels following an on-board fire on the jet that is already almost three years behind plan.

The test fleet of six Dreamliners remains grounded after the fire on one aircraft two weeks ago. Boeing is working to return to flight tests and will present the plan to the U.S. Federal Aviation Administration “as soon as it is complete,” the company said yesterday. A revised schedule will come in several weeks, Boeing said, without providing details.

Boeing had aimed to deliver the Dreamliner in the first quarter, after plans for a handover in May 2008 were derailed by parts shortages, redesign work, challenges from new materials and a greater reliance on suppliers. A delay of as much as six months is already priced into Boeing stock, said Peter Arment, an analyst with Gleacher & Co. in Greenwich, Connecticut.

“The 787 team is now assessing the time required to complete the design changes and software updates that are being developed,” Boeing spokeswoman Loretta Gunter said by e-mail.

Any further delay may require a charge against earnings, said Kenneth Herbert, an analyst with Wedbush Securities in San Francisco. He said a further delay is “all but assured,” writing in a Nov. 22 note that he expects Boeing to deliver 14 Dreamliners in 2011, down from his previous estimate of 22.

Worst-Case Scenario

Morgan Stanley’s Heidi Wood pegged the second half of 2011 for likely delivery, with a worst-case scenario seeing first delivery in 2012.

Boeing rose as much as $1.98, or 3.1 percent, to $65.58 yesterday. The shares have dropped 6.8 percent since the day before the fire on Nov. 9, and are up 21 percent since the beginning of 2010. Airbus parent European Aeronautic, Defence & Space Co. has risen 24 percent so far this year.

Boeing has said the fire in its 787 was likely caused by “foreign debris” that led to a short circuit or electrical arc. A stray aluminum washer shorted out a power panel, causing the blaze during the Nov. 9 flight, said three people familiar with the matter, who asked not to be identified because Boeing hasn’t confirmed the details.

‘Minor’ Changes

The company will make “minor design changes” to the power panels to ensure stray materials cannot get inside, and will update the electrical system’s software to improve power distribution, it said. The 787 is the first all-electric airliner. About half the plane’s structure, including the fuselage, is made of carbon fiber composites.

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.

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 the release. The test fleet is based in Seattle, and the planes 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 testing for both engine types. One is made by General Electric Co. and the other by Rolls-Royce Group Plc.

Proving Capabilities

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, with All Nippon Airways Co.

In the past week, Arment, the Gleacher analyst, 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.

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

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.‹