Problems with 787 raise cost

Published 9:00 pm Wednesday, October 25, 2006

EVERETT – Boeing Co. officials advised of problems facing the new 787 Dreamliner on Tuesday while also reporting a 31 percent drop in third-quarter earnings.

Despite increased commercial airplane sales, the company saw a decline in earnings overall due to the costs of canceling Connexion, its airline Internet service. And Boeing is battling both weight and cost issues with its new jet, which is scheduled to take its first flight in the second half of 2007.

The company predicted increased costs to keep the 787 on schedule, causing Boeing’s stock to drop 2.6 percent Wednesday. It closed at $80.86.

Regardless of looming problems, Boeing CEO Jim McNerney insisted that the 787 would roll out as anticipated.

“This plane will be done on time,” he said.

McNerney called the 787’s weight a “dogged” problem and estimated that Boeing engineers will look to slash it by 2 percent. Research and development costs for 2006 and 2007 jumped from $3 billion each year to as much as $3.2 billion this year and $3.4 billion next year. At least a portion of the extra costs come from Boeing’s new 747 widebody plane.

Boeing’s 787 troubles come just weeks after rival Airbus announced a third delay on its A380 superjumbo jet. The European airplane maker pushed back deliveries an average of two years. Airbus’ newly appointed chief executive has warned of job cuts, with 1,000 temporary workers already picking up pink slips.

Industry analysts do not believe Boeing’s issues with the 787 indicate the company will experience Airbus’ more serious stumbles. Jet makers such as Boeing and Airbus rarely roll out a new plane on time.

“The big surprise would be if the 787 were delivered on time,” Morningstar analyst Chris Lozier said. “We’re expecting some more hiccups there, hopefully all minor.”

For the first time in five years, Boeing is outpacing Airbus in commercial orders, with more than 140 orders for the 787 placed in 2006. Dreamliner requests will keep Boeing’s Everett factory booked for several years.

In the third quarter, Boeing’s Commercial Airplanes division more than doubled its operating earnings, jumping from $238 million to $646 million. Revenues climbed to $6.7 billion from $4.6 billion.

The company took a $280 million hit before taxes this quarter for ending Connexion. At this time last year, Boeing also enjoyed a boost from tax benefits and asset sales. Boeing’s net income for the third quarter of 2006 stood at $694 million, or 89 cents per share. In 2005, the company posted a $1.01 million net income, or $1.26 per share.

McNerney remains optimistic about 2007. The company increased its revenue forecast for next year from $65.5 billion to $66 billion.