Boeing, Air India deal clears way for 787 deliveries

By Michelle Dunlop Herald Writer

The Boeing Co. is expected to deliver three 787 jets this month to Air India, having reached an agreement with the airline over compensation for delays.

India’s minister of civil aviation announced the agreement between Boeing and Air India on Wednesday, according to a Wall Street Journal report. Details of the agreed compensation were not disclosed. The carrier, which has 27 of Boeing’s fuel-efficient Dreamliners on order, previously said it sought as much as $1 billion.

Boeing was more than three years late in delivering the 787 because of the company’s over-reliance on global partners. The company delivered the first Dreamliner in September to All Nippon Airways of Japan. In all, it has delivered 11 787s.

Behind-the-scenes deals for late deliveries are normal, but the 787 program delay is unusual in that all customers are affected.

Several, such as Air India, Virgin and United Airlines, have put pressure publicly on Boeing for compensation over the delay. However, it’s rare for an airline or Boeing disclose settlement terms. In October, China Eastern Airlines said it would use penalties from a late 787 order that it canceled to pay for part of a new order of Boeing 737s.

Qatar Airways’ chief executive has threatened to cancel 787 orders because of delays. Analysts speculated last September that Qatar also orchestrated Cargolux’s initial rejection of the first 747-8 freighter, which Boeing also was late in delivering. Qatar had bought a 35 percent stake in Cargolux not long before Boeing was set to deliver the 747-8. Analysts viewed Cargolux’s last-minute rejection of the freighter as Qatar’s way of ensuring compensation for delays wasn’t too low.

Air India refused delivery of its first 787 last week, pending resolution of the compensation issue. The airline also has been embroiled in a costly pilot strike. The government of India will need to approve the compensation agreement between Boeing and Air India.

The complications with the 787 mean initial deliveries have been costly for Boeing. An analyst estimated Monday that 787 deliveries in the first quarter cost the company $240 million per airplane — significantly more than the 787 sells for. Extensive changes performed on early built 787s have driven up Boeing’s costs. On Wednesday, Boeing said it had assembled the first 787 that won’t require as much extra work.

The 66th 787 to be assembled has rolled off the Everett production line, said Boeing spokesman Scott Lefeber. The jet will require just a few days of extra work, which can be performed just outside the factory. In an investors note Monday, UBS Securities suggested that previously delivered Dreamliners have required an average of 13 months of additional work after leaving the factory floor.

Boeing shares closed Wednesday at $69.02, up $1.44 for the day.

Bloomberg News contributed to this report.

Michelle Dunlop: 425-339-3453; mdunlop@heraldnet.com.