Boeing delays 747-8F first flight, delivery for second time; takes $1 billion charge

Boeing yesterday pushed back first flight of the 747-8 freighter to "early next year" and first delivery to the 2010 fourth quarter and said it will report a $1 billion charge on the program in its third-quarter earnings.

The delay is the second for the 747-8 program; the first freighter originally was supposed to be delivered in the current quarter (ATW, March 2009). Last November the company postponed the first delivery to the 2010 third quarter. It said yesterday that the first 747-8I passenger version will be delivered in the 2011 fourth quarter. It has sold 78 747-8Fs and 20 747-8Is.

The delay revealed yesterday, though not unexpected, marked another embarrassment for the manufacturer, which also is struggling to get its delay-plagued 787 program on track (ATWOnline, Oct. 1). Commercial Airplanes President and CEO Scott Carson recently stepped down, succeeded by former Integrated Defense Systems President and CEO Jim Albaugh (ATWOnline, Sept. 1).

Bernstein Research commented that the latest 747-8F delay is "another example of program-management issues on new development programs at Boeing," adding that "the 747-8 should have been a straightforward development process on a derivative program."

The manufacturer said in a statement that the $1 billion charge is related to "increased production costs and the difficult market conditions" affecting the 747-8 program. Approximately $640 million of the charge "reflects higher estimated costs to produce 747-8 airplanes at both Boeing and supplier facilities," it said. "As the program assembled major components of initial 747-8 freighters during the third quarter, it became clear that late maturity of engineering designs has caused greater than expected re-work and disruption in manufacturing. This is resulting in additional resources being applied on the program."

The remaining $360 million "relates to challenging market conditions and the company's decision to maintain the 747-8 production rate at 1.5 airplanes per month nearly two years longer than previously planned, deferring an increase to 2 per month. Higher allocation of fixed expenses and volume-based penalties to suppliers are the main drivers of the additional costs." It conceded that the 747-8 program is "in a loss position."

by Aaron Karp

Originally published 8 Oct 2009 at: http://feeds.atwonline.com/~r/AtwDailyNews/~3/DWIqYYiEzVg/story.html