Boeing's credibility on the line as market awaits 787

 

It's crunch time for Boeing Co.

After an embarrassing string of delays, the aerospace giant is racing to meet a self-imposed deadline to fly its vaunted new 787 Dreamliner by year's end.

At the center of the storm, Boeing's best and brightest minds, including the newly appointed head of its commercial airplane unit, are scrambling to ensure a smooth take off for the company's highest-profile project. With 850 orders for the new aircraft already on the books, the financial stakes for Chicago-based Boeing are enormous.

The company's engineering reputation is riding on the 787's innovative design, which uses lighter materials and promises customers huge savings in fuel and maintenance costs. Boeing is also being judged on its manufacturing strategy which incorporates an unprecedented number of outside contractors.

"In so many ways, it really is a revolutionary leap in technology for commercial airliners, and I think it's going to change the way that airliners are built in the future" Dennis O'Donoghue, Boeing vice president in charge of flight testing, told Reuters during a tour of Boeing facilities last week.

But before the revolution can occur, the plane has to fly.

Jim Albaugh, the executive newly assigned to lead Boeing Commercial Airplanes, must exert all the influence he can over the process to ensure Boeing fulfills its commitment to the 56 customers who have placed orders for the aircraft.

The three aircraft in the 787 family, which has been in development since the early part of this decade, have list prices of $150 million (90 million pounds) to $205.5 million, 

In late June, the No. 2 plane maker behind EADS unit Airbus delayed the first flight of the Dreamliner. It was the latest in a series of delays that have put the test two years behind its original schedule.

Boeing blamed a structural problem that required reinforcing an area within the side-of-body joint of the aircraft, which is the connection of the wing to the fuselage. The company now aims to fly the plane in the fourth quarter.

Despite criticism from aviation experts and frustrated customers, Boeing has said the lightweight, carbon-composite aircraft will be worth the wait.

"As hard as it is, it's worth going after" O'Donoghue said. "When you're the first one out to do something like this, you take your lumps," he added.

"We had the structural issue, but they're addressing it" he said. "They'll fix it. I don't foresee that there's going to be any more hiccups."

A FIX - OR CANCELLATIONS

Inside Boeing's gigantic assembly complex in Everett, Washington, about 30 miles north of Seattle, gleams a line of 787s coated with a green anticorrosive agent awaiting the side-of-body joint repair intended to pave the way for a test flight.

Boeing has not given a specific date for the flight. But some industry sources say the company has set a November 25 target. Boeing declined to comment on that speculation. It has not disclosed how much money it spent developing the Dreamliner.

A successful test flight by year's end may help restore Boeing's reputation, which is tarnished by the delays. 

"Boeing's credibility on the 787 program has been damaged with customers, suppliers, Wall Street, and even its own employees" said consultant Scott Hamilton at Leeham Co.

Boeing has seen 73 Dreamliner cancellations so far this year. Hamilton said other airlines may also cancel orders but outside factors like tight credit markets and flagging travel demand could be the reason.

After the June test flight delay, Boeing heard from some big customers such as Japan's All Nippon Airways Co, which asked for clarification of the 787 schedule. By July, however, ANA, which is set to take delivery of the first Dreamliner in 2010, said it would buy five more 787s.

If Boeing were to delay the test flight again, customers may fume. But given weak travel demand, carriers are unlikely to abandon their 787 orders, said Richard Aboulafia, aerospace analyst at the Teal Group.

"If (airline) traffic were stronger than it is, you might see people saying 'we're not waiting, we're going with the (Airbus) A330 right now' because that's sort of the aircraft of reference that competes with the 787" Aboulafia said.

"Basically you'd see a lot of frustrated voices and demands for concessions" he said.

At the moment, all eyes are on Albaugh, the BCA chief executive, who replaced Scott Carson in that role earlier this month. Boeing declined requests for an interview with Albaugh, who previously led Boeing's Integrated Defense Systems (IDS).

Albaugh, a 34-year company veteran, has an engineering background that contrasts with Carson's strengths in marketing and sales. Prior to that post, Albaugh was integral to the space and communications program.

Analysts and experts have said BCA and the 787 need the management of an engineer. But they say it is unclear what he can do at this late stage in the Dreamliner design process to ensure a smooth test flight. 

"Albaugh is an enigma to many people" Hamilton said. "The customers do not know him at all. The reaction is mixed and uncertain on Albaugh."