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A mixed day for Boeing: B787 Dreamliner inaugural but more delays and costs, to no surprise

Analysis

The first revenue flight of the Boeing B787, onboard an All Nippon Airways (ANA) charter from Tokyo to Hong Kong on 26-Oct-2011, has become overshadowed by news on the same day of downward, but expected, announcements of further B787 and B747-8 delays and cost increases.

Boeing says its accounting block – the number of aircraft it needs to sell for a programme to break-even – for the B787 is 1100 aircraft. Boeing has so far sold approximately 800 net frames, but that figure could decrease following Air India mulling a cancellation; the carrier is considering reducing its order of 27 to just 12. But that could be good news for Boeing, as an Indian Government accountability report disclosed Air India paid USD6.73 billion for 23 B777-200LR/300ER and 27 B787-8, or approximately USD135 million each, a discount of 45% from list prices – significantly under-value. Boeing can sell the production slots to another carrier for higher value. Boeing has said it expects further B787 cancellations, but also orders too.

Prior to the disclosure, made during Boeing's quarterly financial results, Boeing was expected to have an accounting block of 1000 or more for the B787. Boeing can be expected to sell 300 additional aircraft, especially as it works on a new stretched -10 variant, eventually making the programme profitable. But before the B787 goes into the black for Boeing, the airframer has learned immensely about composites and other matters, including interior design, which it has incorporated on the B747-8 and B737NG and will likely incorporate on its forthcoming B737 MAX and B777 successor.

Fresh delays are coming to the longer-range and higher-capacity B787-9 variant, for which Boeing has 266 orders. Boeing last anticipated the -9 would be delivered in late 2013, but the variant will now be delivered in 2014. This will come as no surprise to B787-9 launch customer Air New Zealand, who said in Jul-2011 the -9 would be delayed until 2014.

That comment caused a public rebuke from Boeing, which had little affect besides agitation on Air New Zealand as the carrier maintained that despite Boeing's prediction, 2014 would be the delivery date. Crystal balls may appear aligned to Auckland, but Boeing does have to follow regulations about what it can disclose and when.

The delay was disclosed not as part of Boeing's public quarterly financial results but was buried in a 10-Q government filing released at the end of the day in the US. The filing also revealed the B747-8 Intercontinental will see a delivery delay to launch customer Lufthansa from late 2011 to 1QFY2012.

Boeing did publicly announce a decrease in the number of B787s and B747-8s it will deliver this year. It will now deliver 15-20 of the two combined – split between 5-7 B787s and 10-13 B747-8s – down from an earlier prediction of 25-30.

The B787 has progressed from "dream" to "liner" – but not for all customers.

Boeing earned USD1.1 billion for the quarter to 30-Sep-2011, a 31% increase year-on-year, surpassing expectations. Revenue rose 4% year-on-year to USD17.7 billion.

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