787 Deliveries Seen To Slip, Airbus Under Greater Threat

Air India Seeks Further Compensation, Unlikely To Get It…

In a week that has seen both highs and lows for Boeing, one of the most controversial aspects of the effects of the industrial action reared its head with one of the largest Boeing 787 customers speaking about compensation in lieu of late deliveries.

During the first ever aerospace exhibition, to be hosted biennially at Hyderabad Begumpet Airport, Air India made no secret of its desire to both remain committed to the 787 and yet seek further penalty payments in the wake of the strike that has almost certainly left Boeing with no option but to push the entire 787 flight test, certification and delivery schedule farther out to the right.

The chairman and managing director of National Aviation Company of India (NACIL), Raghu Menon made the remarks this week and will largely be seen as misguided given that from a contractual standpoint, Boeing will not be liable for compensation payments due to any further delays to the 787 as a reult of the industrial action that is currently ongoing.

“I am afraid the ongoing strike will lead to further delays for the Dreamliner. And further delays will obviously lead to an increase in the compensation amount,” said Menon.

Speaking exclusively to FleetBuzz Editorial.com right after the Farnborough Air Show, Boeing Commercial Airplanes Vice President, Sales, South & Southeast Asia, Dr. Dinesh A. Keskar had made clear that 787 customers in India would be compensated as a result of the third major delay announced back in April this year.

Image copyright/owned by FleetBuzz Editorial.com

During the exhibition in India, Keskar stated that he was “sure [Menon] is aware of the [787 Dreamliner] contract details, and the compensation will be worked accordingly.”

At a time when Boeing is still securing huge orders for the 787, such as those from American Airlines, Air India’s surprisingly bizarre suggestion to seek more compensation is not one that will be emulated by other 787 customers, or indeed, other carriers awaiting delivery of other Boeing airplanes.

Consensus is now forming across the board that service entry for the 787 will be during 2010. With four of the six flight test airplanes in various stages of production, Spirit AeroSystems and other notable programme suppliers cutting back production in the wake of the strike means that the aim of getting all six airplanes flying by the end of February 2009 is going to be an arduous task, particularly as major sub-assemblies for the fifth and sixth test 787’s have not arrived in Everett.

The knock-on effect of which, means that the entire certification programme will likely be pushed well into the fourth quarter of 2009 meaning delivery in the first half of 2010. It is unlikely that there will be any 787 deliveries in 2009 and it is expected that Boeing will discuss this further at its third quarter earnings conference call next week.

On the bright side, with the likes of India’s Kingfisher Airlines and Jet Airways scaling back their overseas ambitions, delays for the overcrowded Indian aviation scene may just be a blessing in disguise.

This site has already noted how Airbus’ exposure to order cancellations is far higher than that of Boeing - despite Jet Airways being rumoured to seek deferment of existing 737’s and 777’s, the likes of Kingfisher and IndiGo are almost certain to cancel A320 orders, and comes as little surprise as Airbus’ John Leahy admitted that production rates will not be raised during 2009.

(And what of that production line in Tianjin…? Hm…)

Image courtesy of American Airlines

Evolution Securities Nick Cunningham succinctly points out - “when it comes down to it, which airlines’ deliveries are they going to cut? That’s a more difficult process.“

Further, seasoned aerospace analyst Robert Stallard highlighted his optimism about Boeing, despite the ongoing strike.

“Aerospace fundamentals are deteriorating, but the sell-off in the Boeing stock has been so extreme it has overshot even our pessimistic revised industry scenario by about 30%.

Around half the company is defense, which we think is likely to remain steady over the next few years, and using a sum-of-the-parts analysis, we calculate that investors are currently getting BCA for about US$10 out of the current US$47 stock price. We think the stock is poised for a bear market rally, and that this is likely to be a good entry point for investors,” he noted.

While the strike casts a shadow over Boeing, the fact that confidence in the 787 remains high coupled with Airbus’ precariously suspect backlog, things will certainly look an awful lot better when it ends.

(Prior articles on the Boeing/IAM strike can be found by clicking these links here, here, here, here, here, here, here,  here,  here,  here, here, here and here.)

9 comments October 16th, 2008