Boeing To Absorb $3.5 Billion Hit from 787 Delays

 - October 24, 2007, 12:09 PM

The delay of the first flight and early deliveries of the 787 will cost Boeing $3.5 billion in revenue next year, according to financial guidance released by the company this morning. However, during the company’s quarterly earnings conference call this morning, Boeing CFO James Bell said reductions in executive compensation and pension costs and “really robust productivity programs,” such as so-called lean initiatives, will allow it to hold its earnings guidance at $5.55 to $5.75 per share for 2008. Bell said that the company has held “constructive discussion” with all the airlines affected by the six-month delay, and that although they “were not pleased,” they remain supportive of the program. “We really don’t at this point, given what our current plan is, believe we’re going to have a fatal issue with a customer,” said Bell.

Now expecting first flight to occur by the end of next year’s first quarter and first deliveries to follow in either late November or December, Boeing plans to shift delivery of 35 airplanes from 2008 to 2009, meaning it will deliver three or four 787s next year and a total of 109–only three fewer than originally planned–by the end of 2009. “I would characterize it as aggressive plan with normal margins in it,” said Boeing chairman, president and CEO Jim McNerney, who earlier estimated that the company will have finished building between 55 and 65 airplanes before it delivers the first to All Nippon Airlines.

Commenting on last week’s decision to change program management, McNerney praised former program head Mike Bair for an “exceptional job taking the program from concept to technology development” but cited the need at this point for “a different set of strengths.”

“[We] thought that Pat [Shanahan] was the best guy to implement this phase of the program, which is much more of a supply chain, operating-focused, day-to-day program management task,” McNerney said. Shanahan, a former head of the 777-400ER and 757 programs and most recently vice president of Boeing Integrated Defense Systems’ missiles unit in Washington, D.C., has already fully immersed himself in the project and, according to McNerney, “He’s embraced it, he knows the people, he knows the functions, he’s been at BCA and there has been nothing that’s popped out in the last week that suggests that this plan is not the right plan.”