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Boeing Bet Rides on 787

A Source of Concern

But orders are one thing, and producing the darn thing is quite another. And this is where we get deeper into the intersection of ambition, complexity and risk. For if the plane misses its 2008 delivery deadline and fails to perform as Boeing's salesmen-engineers promise, then dreamy investors can kiss many of those orders goodbye before the first plane ever takes off.

In its marketing material, the Dreamliner has been sold as a plane that achieves its fuel efficiency and streamlined manufacturing costs through an unprecedented reliance on large quantities of titanium, aluminum and carbon-fiber composites, and on a global supply chain held together by a new software system. Boeing has said that its suppliers and software are performing up to par and that it has not encountered any difficulty in securing enough specialty metals.

Yet persistent rumors have surfaced over the past six months, denied by the company, that the 787 schedule has been plagued with technical, production and supply hitches.

Fear of the loss of a ready source of titanium was in large part behind the company's stunning pledge to spend $27 billion over the next three decades on engineering and raw materials in Russia, an economically and politically unstable country that happens to house most of the world's supply of the key metal.

Two weeks ago, Business Week reported that the passenger-seating section of the 787 fuselage has failed in testing. The company blamed the problem on faulty quality controls, but denied that construction problems at Asian or European airframe contractors would force it to bring more of the work back to the U.S.

Cancellations Coming?

Citigroup aviation analyst George Shapiro notes that, historically, Boeing shares have not performed well during development cycles, and adds that their recent success "reflect(s) a lack of concern about problems developing" with the 787 and its outsourced research and development efforts.

Shapiro also warns that the 787 production cycle may be shorter than normal, as airline profitability has not recovered enough to support the order surge. He expects a wave of order cancellations, even if delivery schedules are met.

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