Boeing 787 Encounters Second Major Delay

January 16th, 2008

Further to the exclusive news revealed early last week that the Boeing 787 Dreamliner power on remained elusive, an article published by the Wall Street Journal stated that the airplane would be delayed again means that Boeing now has an opportunity to impress both stockholders and its customers despite the setback.

With over 800 firm orders and a previously ambitious target of building 109 airplanes by the end of 2009, the realization that the first 787 is taking longer to assemble points to one critical element.

At the December 2007 media briefing, 787 Program Manager Patrick Shanahan had stated that design work on the airplane was complete. From what is already known, the technical aspects of the Dreamliner are not in question, rather the expertise and knowledge from the various suppliers and partners on the program is what has ultimately held back first flight from taking place.

One may argue that the new delay announced by Boeing was not a great a surprise as previously thought and is unlikely to erode the stock in the long term - the 787 has no direct rival and the overwhelming majority of customers still see value in the airplane and have not shied away from continually ordering more.

All images courtesy of Boeing

Delaying the 787 until 2009 will be of little comfort to those who had anticipated seeing service entry later this year, but the move will allow for a greater scope of testing in the event any anomalies arise and will further strengthen the position of the 777-200F which enters final assembly later this month and the 747-8F - both of which were derided by misguided comments that the 787 program would eat their resources and delay these jets too.

Elements of the first 787 did not arrive with the pre-stuffed wiring and other components - in effect, since the July 8, 2007 Premiere, Boeing has had to “reverse engineer” the first airplane to reduce the traveled work in order to both complete installations in readiness for power on status and first flight.

Below is a summary of some of the key points raised in the January 16, 2008 conference call:

BCA President & CEO Scott Carson (SC)

• First flight will occur by end of second quarter 2008, enter service early 2009
• “Disappointed” with delay, right decision for success of program, customers understand
• New plan is credible & achievable
• Product validated – confidence has increased – breakthrough technology for customers and public
• Fastener issue coming down on Airplane #1, parts shortages lower, more work in sequence
• Traveled work taking longer to work through
• Assessment underway of what needs to be done & timescale involved
• Decreased travel work on subsequent airplanes
• “Committed to deliver as promised”
• Credibility being tested
• Will not reach target of 109 airplanes by end of 2009
• Will be in position to understand financial impact on partners in several weeks
• “We will pass this test”

Boeing 787 Program Manager Patrick Shanahan (PS)

• Underestimated time required to complete others (suppliers) work
• Everett set up for large scale last stage integration
• Several thousand system components required for first flight
• 27 system components required for power on to be achieved
• 20 system components required to commence taxi tests
• 75% system components for power on verified in lab tests
• Fastener shortage/replacement “down to hundreds” on Airplane #1
• Not been able to complete assembly work
• Matching product parts & processes “onerous & time consuming”
• Not a lot of margin in original plan – confident in executing new plan
• Power on by start of second quarter (circa April 1 2008)
• On track to demonstrate certification requirements with FAA
• October plan based on analysis – new plane based on experience over last 3 months
• Wiring bundles done
• More time to test/validate bundle functionality
• Parametrically consistent at this stage with past airplane programs
• Striking right balance, creating increased program fidelity
• Airplane #1 will be first to fly

This second delay may well be considered a blessing in disguise for the company and for launch customer, All Nippon Airways.

For Boeing, getting this revolutionary airplane right is far more significant than getting into a customers hands. Finding new problems later on and addressing these if they didn’t crop up during the flight test program is something the company will seek to avoid.

Airbus’ flagship A380 that was delayed for almost two years is now seen as a more mature product since entering service in October 2007. Aside from the unfortunate mishap the first model encountered last week, Singapore Airlines has since taken delivery of its second machine. Despatch reliability for the A380 had been running at 100% prior to the accident caused by a tug.

Likewise, Boeing can emulate and replicate that service entry success with the 787 if time is taken to ensure the airplane is as trouble-free as it can possibly be.

It’s no easy feat but neither is it insurmountable. For All Nippon Airways, news that the Trent 1000 engine is missing its fuel burn target to the tune of some 3% according to some industry sources, Rolls Royce will equally have an extended window in which it can address these issues.

As noted in the piece last week, stretching out and opening up the flight test program to enable service entry towards April 2009 will allow for critical cold weather soak tests to be conducted.

It was noted previously that Boeing would not be conducting full scale evacuation tests - instead empirical evacuation data from the 777 and 767 would have been used to assess passenger movement between aisles to calculate a projected full cabin exit time.

As noted by Patrick Shanahan in the conference call, agreement has already been reached with the FAA on certification requirements and evacuation tests will not be required.

This new delay will in the short term hit hard on Boeing’s stock price and will lead to further analyst pessimism and penalty payments to customers who will not now get their hands on their 787’s till much later than planned.

In the longer term, the outlook for the company remains bright. The marketplaces’ acceptance of the revolutionary benefits that the 787 brings has not stifled orders for the airplane. Only last week, Gulf Air announced it would be ordering 16 787-8’s, Thai Airways too has selected the jet ahead of the competing Airbus A350XWB to replace is ageing A300’s and A330’s and Fijian airline Air Pacific increased it’s 787-9 commitments.

The logistical supplier network that is the 787 lifeline continues to evolve - in aiming for the target of final assembly to just under four days, the experience of being able to assemble prefabricated components has come at a high price for Boeing.

One may argue that where there is risk, there is also reward.

After 2007 sales between both Airbus and Boeing totalling over 2,700 airplanes, an industry slowdown may just be the hidden gem for the 787.

Arriving post-2009 allows airlines to better adjust their fleets towards replacing older widebodies more progressively and build up flight experience with the world’s first largely composite airplane.

Morgan Stanley’s analyst Heidi Wood states that “a (787) delay may be on the margins more tolerable than … when the market was roaring.”

That honest assessment will go a great distance in restoring confidence in Boeing’s ability to state and execute it’s desired goals on the project. While hindsight is a useful instrument to backtrack and avoid hiccups in the future, it may have been more prudent for Boeing to have announced a 12 month delay back in October 2007.

A bitter pill it may have been to swallow, but digesting piecemeal news of setbacks is likely to be viewed with much more negativity.

According to one anonymous email received, flightdeck installation is several weeks away, meaning power on will not realistically be achieved until the first week of April 2008 as stated by Shanahan.

According to BCA President and CEO, Scott Carson, the 787 Dreamliner is the right airplane for the marketplace.

“The fundamental design and technologies of the 787 remain sound“.

“However, we continue to be challenged by startup issues in our factory and in our extended global supply chain.“

The impressive order book for the type is testimony to that - making that concept turn into a reality for the skies above us, a cohesive and integrated supply chain adjustment needs to be made as quickly as possible if the 787 is to avoid any further impediment.

Rather than focus on the setbacks, the key point is the one stressed by Carson -

“We will pass this test“.

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