By Susanna Ray - Sep 24, 2011 3:22 AM GMT+0700
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An All Nippon Airways Co. (ANA) flight attendant stands in the open doorway of a Boeing Co. 787 Dreamliner at Paine Field in Everett, Washington on Aug. 6, 2011. Photographer: Stuart Isett/Bloomberg
Aug. 29 (Bloomberg) -- Bloomberg's Paul Allen reports from a ceremony at Boeing Co.’s factory in Everett, Washington, on production of the 787 Dreamliner and 777 aircraft. The 787 Dreamliner received its so-called type certifications from U.S. and European governments, verifying that it complies with aviation standards. (Source: Bloomberg)
Boeing Co. (BA)’s newest, biggest plane has cast a shadow over ceremonies to mark the three-years-late first delivery of its smaller cousin, the composite-plastic 787 Dreamliner.
Handing over the initial 747-8 jumbo jet on Sept. 19 was supposed to open a week of public-relations victories as Boeing delivered the first of its two beleaguered aircraft models. Instead, Boeing had to cancel three days of events as the launch customer for the 747-8 balked at the last minute.
The planemaker now heads into a weekend of celebrations for the 787, the jet being counted on to return Boeing to the top spot in industry sales lost to Airbus SAS in 2003. Chicago-based Boeing is trying to boost monthly Dreamliner output fivefold in the next two years to help make up for the delays.
“Boeing is not only facing issues on the 747, they need the 787 production ramp-up to go smoothly,” said Heidi Wood, a Morgan Stanley analyst in New York who recommends holding the stock. “But at the moment, it isn’t going real well.”
Speeding up final assembly will be pivotal for Boeing. Planemakers receive most of their payments as jets move through the production cycle before delivery, and airlines’ contracts generally provide for penalties upon delays. Boeing’s aim is to reach 10 Dreamliners a month by 2013, a record level for wide- body aircraft, as it works off a backlog for 821 orders.
“The aerospace supply base is working overtime just to produce two airplanes a month,” Wood said in an interview. “We are convinced that the ramp-up is going to be longer and more arduous than Boeing is describing.”
First Customer
Japan’s All Nippon Airways Co. will be the first airline to get the 787. The events for the handover begin on Sept. 25 near the wide-body jet factory in Everett, Washington, where Boeing builds the Dreamliner and the 747-8.
Scott Fancher, the 787 program chief, said Boeing is working “very hard” with customers to make sure the plane will meet their needs and resolve any concerns. Boeing has said the initial Dreamliners are overweight, as are the first 747-8s, and the company is working to make them lighter.
“We feel pretty good about this airplane and getting it ready to deliver to ANA,” Fancher said this week in a Bloomberg Television interview.
The 747-8 was already two years behind schedule before the freighter version’s entry into service was delayed indefinitely Sept. 16 by Cargolux Airlines International SA’s “unresolved issues.” On Sept. 21, Atlas Air Worldwide Holdings Inc. (AAWW) said it was dropping orders for three of its 12 747-8s, citing delays and “performance considerations.”
Multiple Models
That leaves Boeing tweaking that plane, starting work on a new U.S. Air Force tanker based on the 767 jet and developing an upgraded version of its top-selling single-aisle 737 model -- as well as ending the manufacturing setbacks that stalled the 787 by 2013 while unveiling a larger variant the same year.
“They really need to get it going like a Swiss watch,” Steven Udvar-Hazy, chief executive officer of jet lessor Air Lease Corp., said in an interview this week.
Udvar-Hazy, who has been buying planes from Boeing for four decades, predicted that delays on the Dreamliner may lengthen as the company tries to increase the production tempo. The 787 is the first airliner to be made out of carbon fibers spun around a barrel mold and baked, instead of traditional riveted aluminum, so its assembly is more complicated.
‘Financial Dimension’
“The financial dimension of this is critical,” Udvar-Hazy said. “The faster they can ramp up, the more revenue they can produce.”
Boeing rose 79 cents, or 1.3 percent, to $59.51 at 4:15 p.m. in New York Stock Exchange composite trading, paring its decline for this year to 8.8 percent. The shares have tumbled 41 percent since the first 787 delay in October 2007.
Boeing had been counting on design changes in the next Dreamliner variant, the 787-9, to apply to the first model, the 787-8, and help simplify manufacturing, Wood said. The engineering on the newer version isn’t done yet and its introduction is likely to be delayed a year until 2014, which would crimp 787-8 output, she said.
Boeing is sticking to its 2013 targets, said Lori Gunter, a spokeswoman in Everett.
The Dreamliner uses a new production system in which 65 percent of the jet is built by suppliers and flown to Boeing plants for assembly. Contractors struggled with new materials and responsibilities, contributing to the seven delays to the plane, originally due to enter service in May 2008.
Fighting Congestion
Boeing designed the 787 to counter rising congestion at hub airports. Lighter-weight plastics help reduce fuel consumption, increasing the range to as much as 9,800 miles (about 15,800 kilometers), more than any similar-sized jet.
That will let airlines add routes between smaller cities that lack the traffic to fill jumbo jets like the passenger version of the 747-8, rather than having to fly travelers through hubs. All Nippon plans to familiarize crews with the 787 on domestic trips, then put it on long-haul routes in 2012.
Carriers will still be clamoring for as many 787s as Boeing can build each month, Morgan Stanley’s Wood said. “As the world economies are under pressure, airlines might review parking their bigger airplanes and want to fly a smaller, mid-sized, twin-engine plane instead,” she said.
The challenge for Boeing is reaching production targets on its most-complicated plane while having so many other projects under development, she said.
“They’re craving engineering resources,” Wood said. “That issue on resources is what helped contribute to the 747-8 and 787 delays. It’s not a small problem.”
To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net
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