Boeing may need to give itself plenty of leeway when disclosing the new 787 Dreamliner delivery schedule today, because a third miscalculation...
Boeing may need to give itself plenty of leeway when disclosing the new 787 Dreamliner delivery schedule today, because a third miscalculation might jeopardize the plane maker’s standing with investors.
“The more they miss, the more I get the impression they don’t even know what the problems are,” said Jon Kutler, head of Admiralty Partners, a Los Angeles-based investment firm that focuses on closely held aerospace companies. “It’s going to take a whole lot to repair their credibility.”
Boeing stock has lost 26 percent of its market value since the first of two previous delays was announced in October. Comments last month by International Lease Finance Corp., the biggest 787 customer, primed investors to expect an additional six-month delay into next year’s third quarter, and analysts said the stock may fall further if Boeing strays much from that consensus today.
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The shares will drop if a delay is longer, and if it’s shorter, “I don’t think anyone will believe them,” said Myles Walton, an Oppenheimer & Co. analyst in Boston. The stock is “kind of treading water.”
Boeing shares dropped 2.7 percent on Oct. 10, the day of the first postponement, and 4.7 percent, the most in four years, after The Wall Street Journal reported the imminent second delay on Jan. 15. Boeing stock rose 4 cents to $75.02 Tuesday.
Boeing will probably announce an 18-month delay from the original plan to start delivering Dreamliners next month, the Times of London reported Tuesday, citing unidentified people close to Boeing. That would push shipments back to the end of 2009, rather than the “early 2009″ guidance Boeing gave in January. The company may also scrap the 787-3 version so engineers can focus on solving the problems, the newspaper said on its Web site.
“What we are looking for is for Boeing to give us a feel for whether they have their arms around the issue,” said Manind Govil, portfolio manager at RS Investments in New York, which owns more than 1 million Boeing shares. “What is the new schedule, how realistic is the new schedule and what is the magnitude of the problems?”
Lori Gunter, a spokeswoman for Boeing in Seattle, said, “We have a program update on Wednesday, and that’s all I can say.”
Boeing is counting on the 787 to help reclaim the title of world’s largest commercial aircraft maker, which it lost in 2003 to European rival Airbus. With rising oil prices, the light materials that reduce fuel consumption have helped make the 787 Boeing’s most successful new-plane sales campaign ever.
Ten analysts in a Bloomberg News survey agreed with last month’s prediction by Steven Udvar-Hazy, chairman of International Lease Finance Corp. and the 787’s biggest customer, that deliveries will now slip into next year’s third quarter.
“These guys had two predictions before, and they’ve blown both of them,” said Cai von Rumohr, an analyst with Cowen & Co. in New York with an “outperform” rating on Boeing. “This time they’ll want to reset the schedule once so they can hit it.”
The delays have mounted in part because so much is new with the 787, from the wide use of lightweight composite materials instead of aluminum to a manufacturing process that relies on vendors to build large sections of the plane that Boeing later assembles. A center wing box that attaches wings to the plane had to be strengthened, and the company ran short of fasteners.
“The enormous sales success of the program may have been more a curse than a blessing, as it locked Boeing into the schedule that ultimately could not be executed,” Joseph Nadol, a New York-based JPMorgan analyst, wrote March 25.
Some investors say the Dreamliner will be worth the wait.
“The real issue is whether the plane works and is a commercial success in the end,” said Colin Glinsman, who oversees about $25 billion in assets as chief investment officer at Oppenheimer Capital in New York and says Boeing was among the top five holdings in his accounts at the end of the last reporting period. He declined to say how many shares it owns now.
“It’s a great plane, there’s no real competition from Airbus for many years, and it’s potentially a home run for Boeing,” Glinsman said.
With more than 850 Dreamliners on order even before the first delivery, the model may match a mark it took the 777 more than 10 years to reach, J.B. Groh, an analyst with D.A. Davidson & Co. in Lake Oswego, Ore., said in an April 4 note.
More problems are likely to pop up once the company starts test flights, George Shapiro, an analyst with Citigroup in New York, wrote March 26.
“People just want to get a timetable that they feel is realistic,” said Michael Derchin, an analyst with FTN Midwest Research Securities in New York. “This needs to be the last delay.”
Information from Bloomberg News reporter Thomas Black is included in this report.