Boeing 747-8 Program Hit With Charge, New Delay
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Second delay in program
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747-8 program now in loss position
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Few deliveries seen in FY10
A second delay in 747-8 program is bad news for Boeing - not that any of 2009 has been easy or indeed, going to get any easier, however the $1bn charge is an unpleasant turn for the worst but now Boeing may have some breathing space to deliver on the 787.
After that, there is no excuse for what has been a dire year for the company on failing to achieve pre-designated targets.
With the 747 program already stung with a $685m charge earlier this year, this new financial burden has in part freed up some engineering and flight-related resources aimed at getting the side of body repair complete on the 787 and that should still take to the air by years end.
If it doesn’t, then the scrutiny that will befall Boeing is one that will be self-inflicted.
747-8F production line, taken during my Everett visit last week
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Having visited the 747-8 line just last week, condition of assembly appears excellent and with the first 747-8F over 90% complete, the delay into the fourth quarter of next year for service entry will probably work well for launch customer Cargolux, who like other freight operators are still haemorrhaging loss on earnings and yields in the wake of a worldwide traffic collapse that shows little, if any sign of recovery.
That is of no consolation to a beleaguered aerospace company that has thus far failed to deliver on the 787 program after five crippling delays and now runs the risk of damaging the biggest cash cow it has had for over three decades by weighing it down with this new financial burden.
Granted, this is the second delay in this program, but one would be forgiven that with less than 10% to complete on the first airframe that an “unknown unknown” would crop up to somehow stifle first flight into next year poses some questions about the timing of this news, particularly since the 747-8F, despite its engineering challenges, has come a long way in contrast to the new methods of construction employed on the 787.
The 747 is a legacy program, one that has delivered over 1400 units with over 100 yet to deliver while being fortunate that the freighter orders have for now, remained solid.
Add in the appeal that the 747-8F has no competitors; the model has unique monopoly positioning so this setback in the grand scheme of things isn’t yet a “total disaster” by any account.
The immediate pressure will however mean the 787 comes into play.
If this delay to the 747 does not see the 787 fly by the close of play this year, ultimately new BCA CEO Jim Albaugh is starting his tenure under a shadow of doubt and his critics and sceptics will revel in this only too well.
Raked wing tip and empennage of RC501 in Everett
Financially, this is a deep blow to Boeing – with money being spread across this and the 787 program, compensation payments and costs attached to the Charleston plant purchase, Boeing has it all to do in 2010 - a year which will likely prove more challenging than this year with the expected queue of airlines ready to knock on Boeing’s door for more financing of their orders contrast to what has been seen so far in 2009.
The saving grace is that the 747-8F will draw on lessons learned by the 777 Freighter and aim to enter service with minimal interruption once the three flight test airplanes get to work and chew through some 1700 hours in flight testing along with 2100 hours for ground tests.
As we have seen with the A380, the biggest risk to the 747-8F is that of deferrals if the freight market continues to wane and if any further orders do not appear on the horizon. The 747-8 Intercontinental may be approaching the third year year without a new airline customer, but Lufthansa’s commitment is intact although that program is also in need of a boost with a new airline order.
By delaying the 747-8F’s first flight, Boeing has inadvertently drawn more pressure to itself and that of the 787 program – the financial burdens will inevitably be overcome, particularly since there haven’t been any 747-8F cancellations – however, with the stark possibility of fewer than five deliveries next year, Boeing can ill-afford to push the 787 at the expense of the 747-8 program, especially when both need deliveries so Boeing gets paid.
The time has come to stop these self-inflicted injuries and start the healing process.
Earnings due later this month will hardly be the catalyst for any recovery at Boeing, but seeing the 787 emerge from repairs in a few weeks will likely be the first “green shoot” of recovery that has become an industry buzzword, followed by its long awaited first flight.
This is yet another bad day that Boeing could have avoided and should have avoided.
Update: Randy’s Journal:
http://boeingblogs.com/randy/archives/2009/10/it_dont_come_easy.html
51 comments October 6th, 2009
