Boeing delays 787 delivery on Rolls engine setback

By @ibtimes on

Boeing Co has pushed back delivery of its first 787 Dreamliner by several weeks, a widely expected decision but also the latest in a series of embarrassing glitches that have disrupted production of the hotly anticipated aircraft.

The postponement of the carbon-composite airplane, already more than two years behind schedule, is attributed to a delay in the availability of a Rolls-Royce engine needed for the final phases of flight testing.

The plane is a show-me plane at this point and I think everyone knows that, said Alex Hamilton, managing director with boutique investment bank EarlyBirdCapital. I'll believe it when I see it.

The U.S. planemaker now expects to deliver the first carbon-composite plane to Japan's All Nippon Airways (ANA) <9202.T> by the middle of the first quarter of 2011.

Boeing, the second-largest plane maker after EADS unit Airbus , said in July its delivery schedule might slip from the fourth quarter of 2010. The company blamed instrument configuration and inspection work.

Shares of Boeing, a Dow industrials component, fell in early trading on news of the latest delay but by midmorning had firmed to $63.10, up nearly 3 percent on the New York Stock Exchange.

I think frankly the market is very reassured if the delays, in fact, are limited to this February delivery date, said Kenneth Herbert, an analyst at Wedbush Securities. That's a significant retirement of some of the worst case-scenarios.

Boeing has taken 847 orders for the Dreamliner, which lists for $150 million to $205.5 million depending on the model, making it the company's best-selling airplane at this stage in development. Boeing gets paid for planes at delivery.

ENGINE DELAY

The delay comes four weeks after the Rolls engine, a Trent 1000, blew up at a test site in Derby, central England, forcing the company to temporarily close the facility.

The delivery date revision follows an assessment of the availability of an engine needed for the final phases of flight test this fall, Boeing said in a statement late on Thursday. Flight testing across the test fleet continues as planned.

Boeing added it was working with the British engine maker to ensure engines were made available as soon as possible but that the delay would not affect its financial outlook.

A Rolls spokesman said it was working closely with Boeing to expedite delivery. Rolls added its engine supply issues were unrelated to the test bed event which occurred earlier this month and that none of its engine test programs had suffered any delays.

It is probable that some modification will be required to the Trent 1000's already on the 787 test certification program, said BGC Partners analyst Howard Wheeldon.

Although clearly a setback to the program, we do not see the additional Rolls engineering that is likely required being a major obstacle for the 787.

Shares of Rolls-Royce were off 1.2 percent at 522.5 pence, having earlier hit a seven-week low.

Aviation experts said the latest delay could give Boeing time to smooth out kinks in its global supply chain, which features an unprecedented number of contributors.

Most people thought Boeing had reached too far with the extended global supply chain concept and they probably accept that now, said Wayne Plucker, a senior aerospace industry analyst at Frost & Sullivan.

'REGRETTABLE' DELAY

Airlines like the concept of the twin-aisle, mid-sized plane, which can carry about 250 people very long distances.

But production has been delayed five times, and the first flight has been postponed six times, due to a shortage of bolts, faulty design and a two-month strike at its factory. The plane made its first test flight on December 15, 2009.

Rival Airbus has been attracting buyers for its competing A350 plane, which will also be made primarily from carbon-composite materials.

ANA called the delay regrettable and said it was eager to know when Boeing would be able to deliver its second 787. ANA has ordered 55 of Boeing's latest jetliner, eight of which the planemaker has promised to deliver by April 2011.

The Japanese carrier said it did not include revenue from the 787 in its business plan this year and there would be no change to its profit outlook for the year ending March 31.

Of the major U.S. airlines, only Delta Air Lines , Continental Airlines and UAL Corp's United Airlines have orders for the 787. Boeing's biggest Dreamliner customer, however, is U.S.-based International Lease Finance Corp (ILFC), which has orders for 74 Dreamliners.

Delta, which inherited 18 orders for the plane when it bought Northwest Airlines in 2008, said it technically remains a 787 customer and is still in discussions with Boeing over its order. Continental said it is disappointed but remains committed to the 787 Dreamliner program.

UAL and ILFC did not immediately comment.

(Additional reporting by Sakthi Prasad, Chang-Ran Kim, Karen Jacobs and Deepa Seetharaman; Editing by Steve Orlofsky and Matthew Lewis)

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