Boeing's Headache or Miracle: Dreamliner 787

Aug. 17, 2009— -- Boeing once promised fliers that its new 787 Dreamliner would link small cities around the world, making it efficient for airlines to provide non-stop service from, say, Oklahoma City to Istanbul.

But that dream is now looking more and more like that: just a dream.

The turbulent ride to get the Dreamliner in the air hit another bump last week when Boeing confirmed it has halted production of new fuselages at a plant in Italy while it redesigns part of the plane.

It's the latest setback for a project that is now more than two years behind schedule and has become a repeated public-relations nightmare for the Chicago-based company. Boeing's stock fell 3.75 percent Friday.

The company said this problem would not further delay the project but provided little reassurance that the plane would soon be flying.

"It's a continuation of a bad situation," independent airline analyst Robert Mann said. "They've been relying on assurances after assurances from Boeing and now it appears the aircraft has further production issues. We're reaching a point where not only airlines, but consumers, are starting to question the program."

That said, when the 787 does finally fly, it could dramatically change air travel forever.

The 787 will be the first jetliner with composite-material primary structures. The main material will be graphite combined with a toughened epoxy resin. The wing will also use TiGr, a titanium/graphite composite. It will be a lighter, smaller twin-aisle airplane that could make it cost-effective for airlines to serve smaller markets directly, especially given further international airline deregulation.

Will the Plane Ever Fly?

Richard Aboulafia, an analyst with the Teal Group Corp. of Fairfax, Va., said he doesn't expect Boeing to lose orders from airlines "because there isn't really another plane to compete with the 787."

"Everyone knows that if this thing works, it's what they want," he said.

The question is: Will the plane actually fly.

"We don't know what type of design work needs to be done to make this work," Aboulafia added. "This is the first time anybody has done anything like this in the jetliner business."

Lori Gunter, a Boeing spokeswoman, insisted that the latest design problem is minuscule but being fixed to stay within Boeing's "exacting" standards. The 29 fuselages already built -- the main cabin of an aircraft -- will be fixed with "a very simple patch on the outside of the airplane," she said.

No new fuselages will be built until Boeing slightly redesigns the fuselage by one-one-thousandth of an inch.

"The short story on this is that it has no impact on schedule or cost," Gunter said. "This is fairly typical of a brand new program."

The 787 is having more production problems than Boeing's last new jet, the 777, which first flew in 1995. But this jet has so many new parts and designs that such delays are expected, Gunter said. The Dreamliner is also being built at various contractors around the globe, which was initially hailed by Boeing as a cost-saving measure but has turned into a logistical nightmare.

She added that thanks to the Internet, more of these problems are coming to the public's attention.

The latest problem was first reported on the FlightBlogger Web site.

Boeingy has orders for 850 Dreamliners from 56 airlines. That is down from the initial number of orders, which topped 900. But Gunter said the customers attributed those canceled orders to the economy. The plane has a list price of $157 million to $167 million, although manufactures and airlines often negotiate discounts.

Boeing will announce next month when it expects the test flight and first delivery to occur, Gunter said.

Increased Comfort for Passengers

The Dreamliner is expected to cost Boeing $7 billion to $9 billion to develop.

Traditionally, airlines fly what is known as a hub-and-spoke system. If you are traveling from Montgomery, Ala., to Portland, Ore., for instance, most likely you are going to switch planes in a hub like Atlanta or Dallas. In the United States, Southwest changed that model, focusing on more direct point-to-point service.

But traveling internationally still requires transfers in cities like London, Paris, Frankfurt or Amsterdam. Typically, a large jet leaves a big U.S. city to one of the transfer cities in Europe. Passengers from that flight then split up to smaller jets to their regional destinations. The 787 promises to change that. It is a smaller, more efficient plane and could -- in theory -- allow non-stop service from, say, Kansas City to Prague.

The 787's increased fuel-efficiency, cabin pressurization and design would also enhance the comfort of passengers on longer flights, making the plane a highly sought after model.

"It's a needed product and a hot product that once it's out the door will be efficient for airlines and a crowd-please for customers," independent airline analyst Ray Neidl said.

When airlines publish schedules, they need to know with certainty when an aircraft will be delivered in advance. Airlines that have already ordered the planes and planned around the aircraft's availability will have to start some of the routes later or execute the routes with substitute aircrafts, like the Boeing 767 or 777, said Howard Rubel, managing director of invesment bank Jefferies & Co. in New York City.

Delays are nothing new to the airline industry, which has already been struggling in light of the economic downturn. Some airlines might even welcome the delay.

"Air traffic has been depressed so not having to take these airplanes when they would have been taken is a modest reprieve for airlines," Rubel said.

Information regarding contract-based penalties Boeing may pay as a result of the repeated delays has not been disclosed. There are, however, many ways the company can compensate airlines, such as discounts on future plane orders and cash payments, said Peter Arment, managing director of securities firm Broadpoint Amtech in Greenwich, Conn.

But the repeated delays may pose longer standing threats to the company's image.

"It's a credibility issue, given all the delays in the past two years" Arment said. "Until Boeing gets its 787 flying around, there's still going to be a lot of concern about the program. Right now, there's much more speculation about the direction of the program."

Airbus, Boeing's closest competitor, is developing the A350, a long-range aircraft that also uses a composite structure, to compete with the 787 model. Airbus, however, is still years away from offering the product, which is expected to enter service in 2013.

The British government said Friday it will loan Airbus $562 million to finance the development of wings and purchase of machine tools for the A350. In return, the U.K. will receive an 18 percent work share.

Some analysts question the viability of the expensive and new technology Airbus and Boeing seek to utilize.

"Even the A350's competing design, which also makes use of an extensive composite structure -- there's concern over whether or not that's really ready for primetime use," analyst Mann said. "One would normally say the delay in one manufacturer would benefit the other, but you have to question if either of these programs is going to be on time or ultimately successful."