Everett, Wash.
Published: Thursday, June 25, 2009

Boeing's stock takes a beating after newest delay

Assessing Boeing's situation, investment firms predict a structural fix for the 787 will take months.

By Michelle Dunlop
Herald Writer

 EVERETT -- Will Wall Street demand blood from the Boeing Co. after the company's latest 787 slip-up?

Boeing's shares took another beating from Wall Street on Wednesday, falling 5.8 percent. The drop follows a 6.5 decline Tuesday when the aerospace company postponed the first flight of its new Dreamliner just days after Boeing executives assured media at the Paris Air Show that the 787 would fly by month's end.

Absent a new Dreamliner schedule, at least two investment firms predicted it will take months for Boeing to come up with a structural fix for its mostly composite Dreamliner. Both Morgan Stanley and Oppenheimer downgraded Boeing's stock Wednesday.

Still, analyst Paul Nisbet, with JSA Research, doesn't think that Boeing needs to shake up its top management just yet. If Boeing can continue production on the 787 and fall only a few months behind on initial deliveries, then Nisbet sees no reason to oust any Boeing executives.

"We need to know the severity of the delay," Nisbet said.

On Tuesday, Boeing said it had identified a need to reinforce 36 small spots where the wings meet the fuselage. Boeing labeled the problem as "limited" and "manageable" but said it would need several weeks to determine a new schedule for first flight.

Brokerage firm Morgan Stanley estimated that Boeing won't fly its Dreamliner for three to six months, pushing back the first 787 delivery from first quarter 2010 into 2011. Given Boeing's numerous setbacks on the Dreamliner, a delay of such magnitude would put the 787 nearly three years behind schedule.

And that could fuel calls for a change in Boeing leadership. Already, Boeing's 787 program has seen several shifts in responsibilities with three different executives -- Mike Bair, Pat Shanahan and Scott Fancher -- leading the Dreamliner program within the last two years.

"This time it doesn't appear to be an organizational issue," said Richard Aboulafia, an aviation analyst with the Teal Group.

Many of Boeing's previous delays were a reflection of how the company managed its global supply chain. However, the cause of this delay is technical, bringing into question the 787's design, modeling and materials. Aboulafia called the 787's structural defect "deeply concerning."

Boeing's earlier modeling of how its mostly composite jet would perform under stress did not raise red flags concerning weaknesses where the wing and body come together. Although the issue popped up during tests last month, Boeing initially didn't think it would affect the first flight.

Just last week, Scott Carson, Boeing's president of commercial airplanes, assured aviation enthusiasts that the 787 would fly by June 30. After five major delays, media and analysts aren't alone in questioning the company's credibility and communication strategy. Dreamliner launch customer All Nippon Airways urged Boeing on Tuesday to set a new schedule. Prior to the delay announcement, Qatar Airways complained about 787 delays and Boeing's lack of communication.

Analysts Aboulafia and Nisbet doubt that Boeing's recent 787 troubles will play any role in its bid to win a U.S. Air Force tanker contract. During the last round, the Air Force said it would take past performance into account as it weighed Boeing's KC-767 proposal with duo Northrop Grumman and EADS' KC-30 offering. While Boeing has struggled with its 787 and international 767 tankers, EADS has battled delays on its A400 military aircraft as well as the Airbus A380.

"It's not as if one is doing better than the other," Nisbet said. "They're both bad. They both lack credibility."
© 2009The Daily Herald Co., Everett, WA