Boeing's 787 Delayed Again

Despite the latest 787 setback, shares are rising as the company says it expects no change in its 2008 profit outlook. Plus, next year's earnings per share growth should be strong.
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Updated from 10:54 a.m. EDT

Citing continued production delays,

Boeing

(BA) - Get Report

slashed the number of expected 787 deliveries next year to about 25, down from its most recent projection of 109.

The airplane maker said Wednesday that first delivery will take place in the third quarter of 2009, while the initial flight is scheduled for the fourth quarter of 2008. At one time, the debut flight was scheduled for August 2007.

Wednesday's schedule revision follows an assessment, started in January, of supply chain and production systems. The new plan includes a more gradual ramp-up to full production. By 2012, the production rate for the aircraft -- Boeing has 892 orders -- is expected to reach 10 a month.

On a conference call Wednesday, Scott Carson, CEO of Boeing Commercial Airplanes, declined to specify when Boeing will catch up with its delivery schedule or how it will deal with penalty provisions for late deliveries. Discussions with customers are ongoing, he said.

"We are extremely disappointed," said launch customer All Nippon Airways. The Japanese carrier was scheduled to take the first 787 in mid-2008. "This is the third delay in the delivery of the first aircraft, and we still have no details about the full delivery schedule," ANA said. "We would urge Boeing to provide us with a 120% definitive schedule as soon as possible."

The delay reflects slower-than-expected completion of work that traveled from supplier facilities into Boeing's final assembly line in Everett, Wash., unanticipated rework, and the addition of margin into the testing schedule, the company said.

"We have been very concerned about the amount of traveled work," said Carson, adding that Boeing is now committed to a stronger presence at many of its partners and has assigned "senior people" to the task. Boeing had designed a unique process to build the 787, relying on partners to manufacture components at locations around the world, then ship them to Everett.

Boeing moved last month to acquire 50% of one partner, South Carolina contractor Global Aeronautica, which is involved in fuselage assembly and had not hit milestones laid out in January. Another problem, disclosed Wednesday, involves the need to strengthen the center wing box, which holds the wings in place. It is being manufactured in Nagoya, Japan.

Boeing executives expressed confidence they could meet the new schedule, but they previously did the same in announcing earlier delays. "There are no technical inventions needed here," said Pat Shanahan, manager of the 787 program. "It's a matter of burning through the work."

Production timing for the 787's derivatives has also been altered. Now, the first delivery of the 787-9, a larger version of the airplane, is planned for early 2012. It will be followed by the 787-3, a shorter-range model, which had been planned for 2010.

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Despite increased research and development costs associated with the new schedule, Boeing said it expects no change in its 2008 earnings guidance and anticipates strong 2009 earnings per share growth. It promised forecasts during the company's earning conference call April 23rd.

The possibility of added delays had already been expected by some analysts, and indeed shareholders took the news in stride. Shares of Boeing were recently up 4.6% at $78.50.

Know What You Own

: BA operates in the aerospace industry, and some of the other stocks in its field include

Lockheed Martin

(LMT) - Get Report

,

Northrop Grumman

(NOC) - Get Report

and

Raytheon

(RTN) - Get Report

. These stocks were recently trading at $103.39, -0.10%, $78.23, +0.20% and $67.21, +1.05% respectively. For more on the value of knowing what you own, visit TheStreet.com's

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