Published: Monday, February 2, 2009
Is the 747-8 worth it for Boeing?
High costs and few orders, but Boeing still believes in jumbo jet
EVERETT -- The Boeing Co.'s biggest plane, its new 747-8, recently gave the company and its investors a jumbo-size headache.
The aerospace company surprised analysts last week when it reported $685 million in charges related to delays in its revamped 747 program. The updated jumbo jet hasn't garnered the response that many expected, with just 28 orders for the passenger version. With few orders in sight and declines in air traffic predicted, Boeing faced the inevitable question: is the 747-8 worth going forward?
"Look, obviously, we have applied a judgment here that says we have a very competitive airplane here that has already got a good start on orders," said Jim McNerney, Boeing's chief executive. "If we didn't believe that the revenues would outweigh the costs ...we wouldn't go forward with it."
Last November, Boeing pushed back deliveries of both the freighter and passenger versions of its 747-8 following a 57-day strike by its Machinists union. But the strike was only a small piece in a setback that has Boeing delivering the first freighter in the second half of 2010 and the first 747-8 passenger plane in 2011.
On Wednesday, James Bell, Boeing's chief financial officer, explained Boeing's move and the charge.
Late design changes in the 747-8's wing made up about 50 percent of the $685 million charge, Bell said. Boeing was slow to move over its engineers from the delayed 787 to the 747 program. Some design changes meant the 747-8 will have fewer parts in common with its predecessor, the 747-400. And supply chain problems, and the resulting effect on Boeing's production, made up about 25 percent of the charge, he said.
But Boeing is making progress on the new jumbo jet, which should roll out of the Everett factory sometime in the third quarter, said Tim Bader, 747 program spokesman.
Boeing loaded fuselage section 41 for the first 747-8 Freighter on Jan. 17. The 747-8 is at the stage in production, with the current focus on wings, floors and the forward fuselage, Bader said. The wing assembly has been produced for the second 747-8 Freighter.
In total, Boeing will have three 747-8 cargo planes in its flight test program. The company expects to fly the first 747-8 Freighter in September or October. That means Boeing still will have its 787 Dreamliner in flight test at the same time.
However, Boeing added time to the 747-8's flight test program when it shifted the schedule in November, Bader said. If all goes well, Boeing will deliver in the third quarter of 2010 the first 747-8 Freighter to Cargolux, one of nine 747-8 cargo customers.
Boeing has a monopoly in the very large cargo jet market, since rival Airbus has yet to complete a freighter version for its A380 super jumbo jet. And that's a market Boeing won't want to abandon, Richard Aboulafia, analyst with the Teal Group, said on Wednesday. Airbus has won 198 orders for its passenger A380 jet.
Unless Boeing "isn't being upfront about the costs and risks" associated with the 747-8 program, Aboulafia said, then it wouldn't make sense for the company to scrap its 747 program.
Reporter Michelle Dunlop: 425-339-3454 or email@example.com.