Updated with share price.SEATTLE ( TheStreet) -- Say this for Boeing ( BA): The aircraft maker seems to love taking risks. It's an odd trait for a member of a duopoly, one of just two companies in the world that makes big jet airplanes. You don't see duopolists like FedEx ( FDX) and UPS ( UPS) taking huge risks. They are too busy printing money. Boeing, by contrast, gambled heavily as it planned development of the 787, starting in 2002. One new concept was the airplane's structure, largely composites. Another was a widely scattered, global production process that Boeing now admits was overly ambitious, primarily because oversight was lacking. >> Photo Gallery: 787 Dreamliner to Fly by End of 2009 When the project fell too far behind schedules, Boeing upped the ante even more by pulling engineers from the 747-8 freighter, another new plane that was being developed, pushing it behind schedule, too. By building a second 787 plant in Charleston, S.C., Boeing, which posted a $1.6 billion loss in the third quarter, has chosen to gamble again in order to address the labor risk at its existing production facility in Everett, Wash. That quarterly loss included charges of $1 billion for delays in the 747-8 program and non-cash charges of $2.5 billion as it reclassified the first three 787s to research and development, since they no longer can be sold after so much testing. "Boeing needs the second line to try to catch up on delays; there's no question about that," says aviation consultant Scott Hamilton. "But it's a high-risk move to put it in Charleston, which continues to be part of the problem."
Delays at two existing Charleston plants, which provide 787 components, have contributed to the overall project delays. Hamilton said executives led by Boeing CEO Jim McNerney have bet the company on the 787. With the Charleston line scheduled to be up and running in 2012, "they have a few years" for the bet to pay off, he said. At an investor conference in September, McNerney was asked whether Boeing and competitor Airbus comprise a "dysfunctional duopoly," given extended delays in both the 787 and the 380 programs, He responded that both companies "have been somewhat chastened by our reach exceeding our grasp on a number of programs." Last week, discussing the possibility of a Charleston line on an earnings conference call, McNerney acknowledged: "There would be execution challenges associated with that choice." But he said those challenges would be "more than overcome by strikes happening every three or four years in Puget Sound." Wall Street seems comfortable with the plan to set up shop in Charleston. Shortly before 1:30 p.m. EDT Friday, Boeing shares were trading down 92 cents to $47.90. FTN Equity Capital analyst Mike Derchin says the risk in Charleston pales by comparison to "the bigger risk of keeping everything in Washington, facing a shutdown every three years." He says labor cannot be blamed for 787 delays to date, "but going forward, it's a big plus to have part of the operation in an area that is labor-strife free." Nevertheless, Derchin has a neutral rating on Boeing. To play the 787, he prefers Precision Castparts ( PCP), a supplier with revenue of $5.5 million from each aircraft -- five times its revenue on a Boeing 737.
Meanwhile, Broadpoint Amtech analyst Peter Arment said, "Boeing did not choose the low-risk solution of expanding its existing 787 line in Everett, reflecting its intense disdain for being held hostage by labor unions." Still, "the economics of the decision are compelling and enough to overcome the risks of a greenfield production line," wrote Arment in a report issued Thursday. "The new labor pool and likelihood of needing as much as three years to get the line running smoothly highlight the risk Boeing is taking with this decision. However, caving into union demands will make Boeing uncompetitive just as Japan, China, Brazil and Canada all ramp up airliner production in the next 20 years." -- Written by Ted Reed in Charlotte, N.C. .