Boeing Company (NYSE: BA) yesterday (Thursday) announced it would test-fly its 787 Dreamliner later this year but disappointed customers by delaying delivery of the plane until the fourth quarter of 2010.
Wall Street cheered the announcement as Boeing’s stock soared more than 6% in New York trading after the company said it still expects the 787 to be profitable.
The rally came despite news that costs for the first three test planes would be charged-off as having no commercial value, resulting in an estimated pretax charge of $2.5 billion, or $2.21 a share, in the third quarter. Boeing said the charge wouldn’t affect its cash flows.
“This new schedule provides us the time needed to complete the remaining work necessary to put the 787’s game-changing capability in the hands of our customers,” said Boeing Chief Executive Officer Jim McNerney.
The 787, already two years behind its original schedule, was scheduled for its first test flight in the second quarter of 2009, but the flight was delayed so Boeing could address newly discovered structural problems. The latest development marks the seventh delay in the production cycle for the highly anticipated plane.
“The real challenge for Boeing is to actually stick to this revised 787 timetable -- something it has been unable to do in the past.” Rob Stallard, a New York-based analyst with Macquarie Capital Inc., wrote in a note to clients obtained by Bloomberg News.
All Nippon Airways Co. Ltd. (OTC: ALNPY), which is scheduled to take delivery of the first 787, was quick to register displeasure with the latest delay.
"We understand the need to make the best and safest aircraft possible and appreciate that delays due to engineering issues of the current nature must be solved in order to move forward and achieve this," ANA said in an emailed statement obtained by Reuters. "However, as launch customer and future operator of the 787, the length of this further delay is a source of great dismay, not to say frustration."
The repeated delays have cost Boeing millions of dollars in penalties and concessions to customers.
Major airlines have used the delays as bargaining chips to squeeze concessions from the plane maker on delivery dates, incremental payment schedules and even the final purchase price.
Some airlines have gone so far as to threaten to cancel orders for the 787, as well as larger 777s, because of delays caused by disruptions at Boeing.
"Boeing doesn't realize how much they're hurting their customers' plans," Akbar Al Baker, chief executive officer of Qatar Airways WLL told The Wall Street Journal at the Paris Air Show in June. It’s now uncertain when that airline might receive the first of 30 787s it had ordered to be delivered starting in 2011.
The fastest selling plane in history, the Dreamliner has racked up over 900 orders since it was announced in 2005, largely based on fuel efficiency. With recent cancellations that number is now closer to 850.
In addition to technical problems, getting the plane to production has also been hampered by major labor disruptions. A prolonged strike by machinists in 2008 was largely responsible for an 8% drop in aircraft sales. Commercial aircraft generated $28.3 billion of Boeing’s $60.9 billion in sales last year, behind only defense contracts.
“Work stoppages over the past several years have cost Boeing $9 billion in revenue and $2 billion in lost profits,” Sen. Mike Hewitt, R-Wash. told the Spokesman Review.
The setbacks in bringing the plane to production have had a “significant impact” on company finances, Boeing Chief Financial Officer James Bell said in an Aug. 20 memo to employees obtained by Bloomberg.
Despite Thursday’s market rally, Boeing’s stock has lost more than half its market value since the 787’s first delay in October 2007. At least seven Wall Street analysts have downgraded the stock since last December, including Credit Suisse (NYSE: CS) and Barclays Capital PLC (ADR NYSE: BCS).
News and Related Story Links:
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Bloomberg:
Boeing Rises After Saying Dreamliner Still Profitable -
Reuters:
Boeing sees 787 flight this year -
Wall Street Journal:
Boeing to Fly Dreamliner by Year-End -
Wall Street Journal:
Boeing Feels New Pressure to Placate Its 787 Buyers -
The Spokesman Review:
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