Boeing made the startling announcement this morning that it will withdraw the first three 787s from the commercial market and take a $2.5 billion hit. And after being burned by one delay after another, the company will take a full year between first flight now slated for the fourth quarter and commercial deliveries in late 2010.
'Customers were not interested in taking those planes [due to] extensive modifications and out of sequence work," said Commercial Airplanes president and CEO Scott Carson, adding they would require too much refurbishing and modifying to enter commercial service. "Each airplane while fully suited for rigorous for flight test and meeting FAA certification have been determined to have limited commercial value."
The $2.5 billion non cash charge or $2.21 a share will be moved "from inventory" to the research and development budget and taken in the third quarter, according to Jame Bell, Boeing CFO.The company is still assessing whether it will record a loss for the first block of 787s sold commercially.
Carson also said the company has determined the other three test units, planes 4-6, are marketable commercially.
Boeing will now take a full year to flight test the plane to account for any problems versus six to nine months previously in the since aborted launch plans.
"We've left a little wiggle room to accommodate for any disruption in flight
test and the side of body fix. We are buffering the customer, [too]," said Pat Shanahan, Boeing Commercial Airplanes vice president and GM of Airplane Programs.
Carson also elaborated on the production schedule and said the decision about a second 787 production line in either Everett, Wash. where the aircraft is assembled now or Charleston, S. C., will be made before the end of the year.
Everett can assemble up to seven new 787s a month, but the company expects to be up to 10 a month by the end of 2013 to work down an unprecedented backlog. "We sold over 800 airplanes. Normally, we've sold about 100 in this [stage] of production life," said Carson.
As for the "side of body fix" that caused the most recent delay, Boeing will place "4-5 fittings" on stringers in the upper part of the wings where they attach into the wing box. Boeing will do the repair itself on the first 15 airplanes and then hand off the modification to its wing suppliers in plane 16, said Carson.
In the meantime, the extra time has given Boeing engineers the opportunity to mature the rest of airplane.
"There is less uncertainty around performance We are seeing a lot of maturity in the airplanes out there taxiing (see video below). I'm feeling good about where we are, but I'd rather be flying it because that will retire a lot of risk," said Shanahan. "There is no fundamental change to how we look at composite design or design to the wing."
Asked by a reporter how the "crisis state" of the 787 development and launch has been a challenge to the leadership of the company, Carson elaborated while Boeing CEO Jim McNerney seem to brush off the question.
"It has been a challenge. We've taken steps to strengthen the team and have done a lot more outreach and with the supply base. The team has held up very well and is as strong as it has ever been," said Carson.
"I would echo that," snapped McNerney and the conference call ended.
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