Boeing Delays 787 Again

Deliveries are now expected to begin in early 2009, rather than late 2008.
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Updated from 9:17 a.m. EST

Boeing

(BA) - Get Report

has backed away from its plan to deliver 109 of its 787 Dreamliners next year, saying it faces delays in the completion and sequencing of work performed by its outside contractors.

"We're not going to have 109 deliveries in '09, we're fairly confident of that," Scott Carson, CEO of Boeing Commercial Aircraft, said Wednesday on a conference call with reporters and analysts. "We don't have a definitive number yet." He said Boeing will provide an update at the end of the first quarter.

Carson said the first flight of the widely awaited aircraft will take place at the end of the second quarter. Once scheduled for August 2007, it was already postponed and set for the end of the first quarter. Meanwhile, the first delivery will be moved into early 2009.

Boeing had originally been planning for deliveries to begin in May of this year, but it had already said it would miss that date by several months before the latest delay.

While parts shortages are extending the program schedule, the principal problem is assuring timely completion of "traveled" work by contractors, whom Boeing enlisted as part of a complex process by which key components would be manufactured elsewhere and shipped to Everett, Wash., for final assembly.

"We just need to get the traveled work completed. That's really the pacing item," Pat Shanahan, general manager of the 787 program, said on the call. "Parts are not the pacing items,

but we underestimated how long it would take to complete someone else's work. We designed our factory to be a lean operation. We thought we could accommodate the traveled work from our suppliers. We thought wrong."

The delay affects Boeing customers, because the 787 will fly long-haul international routes where passenger demand is growing rapidly.

"We are very disappointed by Boeing's announcement," said a spokesman for

Northwest

(NWA)

, which has orders or options for 68 of the aircraft. "We're hopeful that Boeing will address the problems with the 787 production expeditiously and be in a position to provide us with a reliable delivery schedule."

Though Boeing made clear that it will delay the first flight by about three months, it was imprecise on the far more important question of 2009 aircraft deliveries, said John McMahon, CEO of

Genesis Lease

(GLS)

, in an interview.

Like several observers, McMahon said in December that delivery of more than 100 planes next year was impossible. "They still have no real idea," he said Wednesday. "The production time is not firm, and it can't be firm until they sort out the work-related issues, and I'm disappointed that delays in actual deliveries could be extensive.

"Still, they are right to take the time to get it right, because there's no upside in getting it wrong," he said. "The problem is that the level of expectations has been too high, and I think it is still too high."

Boeing said the change won't affect its 2007 financial results. The impact on this year shouldn't be significant, it said. Boeing will hold a fourth-quarter earnings conference call on Jan. 30. The company continues to expect "strong earnings per share growth" next year.

Shares of Boeing were trading recently at $79.4, up 2.7%. The shares hit at a 52-week-high near $108 in July.

Boeing investors face a tough choice, said Bank of America analyst Robert Stallard, in a report. "Another delay, with no revised delivery schedule, and no guarantee that there will not be further push-outs, leaves Boeing investors in a difficult position," he said. "Clearly selling after all this bad news would seem counterintuitive, but if there is more bad news (and negative EPS adjustments) to come, we can understand such a conclusion."

However, Stallard believes that for long-term investors the current price "could turn out to be a good entry point, even if ultimately Boeing goes lower before recovering." Bank of America has a relationship with Boeing that includes providing investment banking services and beneficial ownership of 1% or more of a class of common equity.

Meanwhile, Airbus reported that in 2007 it booked a record 1,341 orders and delivered 453 airplanes. Airbus surpassed Boeing's 441 deliveries during the year, but Boeing led in orders with 1,413.

At a Toulouse, France, press conference, Airbus executives spoke understandingly of Boeing's plight, not surprisingly given the delays Airbus has encountered in its A350 and A380 programs.

The 787 delay "shows how complex aircraft manufacturing is and why there are only two producers of large commercial aircraft over 100 seats in the world," Airbus sales chief John Leahy told reporters, according to

Reuters

."

Boeing will get through it. I don't see any advantage for Airbus."