First Boeing 787 delivered; here comes the hard part
Sep 25, 2011, 3:04 p.m.
By Kyle Peterson
CHICAGO (Reuters) - As Boeing Co executives and workers toast the first delivery of the revolutionary 787 Dreamliner on Sunday, the next enormous hurdle must weigh heavily on their minds: they have to make about 800 more.
The company has 821 orders for the lightweight carbon-composite aircraft on its books, a record number for a Boeing plane still in development.
The airplane, which owes its popularity to promises of unprecedented fuel savings and passenger comfort, however, is three years behind its original development schedule and by some estimates tens of billions of dollars over budget.
Boeing, which competes for airplane orders with EADS unit Airbus, gets paid for its planes when it delivers them. So the sooner the company can get orders filled, the sooner it can start earning a return on its investment.
The Dreamliner lists for about $200 million, but actual sales prices are normally lower than list prices.
"The break-even point on the aircraft is a big bone of contention," said Alex Hamilton, managing director of EarlyBirdCapital. "No one is quite sure where that is, but obviously the quicker you go through production, the quicker you're going to get to profitability at some point."
Hamilton noted that while the order book for the 787 appears stable for now, the struggling world economy could induce airline customers to cancel orders. Today's order backlog is down from about 850 Dreamliners a year ago.
"Obviously the worse the economy gets, the more at risk that backlog is," he said. "The longer that backlog is there, the greater their chances are that some of that backlog disappears."
Boeing aims to produce 10 Dreamliners per month by the end of 2013 at its assembly plants in Washington state and South Carolina, a brisk pace compared with the two a month it currently builds.
The company, meanwhile, is ramping up production on other airplane models such as its best-selling narrowbody 737 and the widebody 777 to accommodate growing demand.
But unlike Boeing's better-established models, the 787 incorporates many firsts in its design and production method.
To develop and build the 787, Boeing made liberal use of a vast global supply chain that sees components made all over the world and brought on a fleet of 747s to its U.S. plants for assembly. Wings are made in Japan; part of the fuselage is made in Italy; the tail fin is built in the United States.
Boeing had hoped this technique would spread risk among the suppliers and lure the best engineering talent. Glitches in the supply chain, however, led to multiple program disruptions and years of delays. Boeing plans to bring some of the work back in house.
"It's pretty different," said Richard Aboulafia, an aerospace analyst at the Teal Group.
"They've got to start building aircraft starting from the word 'go' and figuring out the most efficient flow. And there's no pattern for that," he said.
A further wrinkle, Aboulafia said, is a new assembly plant in South Carolina. Boeing intends to assemble three Dreamliners per month at the plant, where workers have less experience than their Washington counterparts, who will make the other seven.
Cai von Rumohr, an analyst at Cowen and Co, said few aviation experts would be surprised if Boeing failed to meet its end-2013 production-rate target.
"I think everyone wouldn't be shocked," he said. "It could take them longer than that for sure.
"Everyone knows that's a challenge," von Rumohr said. "So I think all of us are a little nervous and skeptical that they can really do it on that schedule, because that's pretty ambitious."
Despite the delays and further challenges, Boeing's airline customers remain enthusiastic about their Dreamliner orders.
Japan's All Nippon Airways, which took delivery of the first 787 on Sunday, believes Boeing can meet its goals, ANA senior vice president Satoru Fujiki said.
"We have waited three years," Fujiki told reporters in Everett, Washington, after the companies signed the final contract to complete the transaction.
"Finally, we have reached first delivery," he said. "So at this moment, we are quite confident in Boeing's ability to deliver on schedule this time."
(Additional reporting by Tim Hepher in Seattle; Editing by Dale Hudson)
- SEATTLE (Reuters) - The union representing Boeing Co <BA.N> workers in Washington ...
- Wall Street stabilizes after disastrous week
- When Bud Forrest created the stage show “In the Mood” 21 years ...
- One out of every six health care dollars is spent on treating ...
- In searching for investment options, would you rather have—high return or low ...
- In their early 70s, Koert and Rebecca Smith were looking to make ...
- At age 74, singer-songwriter Paul Williams is in better shape than he ...