Summary
Fresh delay in 747-8 program is bad news, the $1bn charge is an unpleasant turn for the worst but now Boeing has breathing space to deliver on the 787. After that, there is no excuse.
Analysis
Having already been hit with a $685m charge at the start of the year, this new financial burden has in part freed up engineering resources aimed at getting the side of body repair complete on the 787 and that should still take to the air by years end.
If it doesn’t, then the scrutiny that will befall Boeing is one that will be self-inflicted.
Having visited the 747-8 line just last week, condition of assembly appears excellent and with the first 747-8F over 90% complete, the delay into the fourth quarter of next year for service entry will probably work well for launch customer Cargolux, who like other freight operators are still haemorrhaging loss on earnings and yields in the wake of a worldwide traffic collapse.
Of course that is of no consolation to a beleaguered aerospace company that has thus far failed to deliver on the 787 program and now runs the risk of damaging the biggest cash cow it has had for over three decades.
Granted, this is the second delay in this program, but one would be forgiven that with less than 10% to complete on the first airframe that an “unknown unknown” would crop up to somehow stifle first flight into next year.
The 747 is a legacy program, one that has delivered over 1400 units with over 100 yet to deliver.
Further, add in the appeal that the 747-8F has no competitors; the model has a unique monopoly so this setback in the grand scheme of things isn’t yet a “total disaster” by any account.
The immediate pressure will however mean the 787 comes into play.
If this delay to the 747 does not see the 787 fly by the close of play this year, ultimately new BCA CEO Jim Albaugh is starting his tenure under a shadow of doubt and his critics and sceptics will proclaim this only too well.
Financially, this is a deep blow to Boeing – with money being spread across this and the 787 program, compensation payments and costs attached to the Charleston plant purchase, Boeing has it all to do in 2010.
The saving grace is that the 747-8F will draw on lessons learned by the 777 Freighter and aim to enter service with minimal interruption once the three flight test airplanes get to work.
The bigger risk, as we have seen with the A380, is that of deferrals if the freight market continues to wane and if any further orders do not appear on the horizon.
By delaying the 747-8F’s first flight, Boeing has inadvertently drawn more pressure to itself and that of the 787 – the financial burdens will inevitably be overcome, particularly since there haven’t been any 747-8F cancellations – however, with the stark possibility of fewer than five deliveries next year, Boeing can ill-afford to push the 787 at the expense of the 747-8 program, especially when both need deliveries so Boeing gets paid.
The time has come to stop these self-inflicted injuries and start the healing process.
Earnings due later this month will hardly be the catalyst, but seeing the 787 emerge from repairs in a few weeks will likely be the first “green shoot” of recovery that has synonymously become an industry catchword followed by its long awaited first flight.
For now, this is yet another bad day that Boeing could have avoided.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
