Analyst warns that 787 program could face delays

Boeing's stock tumbled more than 3 percent Monday after a Wall Street analyst asserted the 787 Dreamliner program is running into delays and cost increases.

Wachovia Capital Markets senior analyst Joe San Pietro cited "contacts deep within Boeing's supply chain" as the basis for his report that problems with overseas suppliers are endangering Boeing's aggressive schedule to deliver the 787. He downgraded the stock to neutral.

San Pietro said the first center wing box — the key structural element of the center fuselage which holds the wings — delivered last week from Fuji in Japan to Global Aeronautica in Charleston, SC, was sent without the wiring, hydraulics and many of the fasteners that were supposed to be pre-installed.

"This is now requiring a scope rework between Boeing and Global Aeronautica, as GA would be forced to become responsible for supplying the innards," San Pietro reported.

San Pietro said Boeing's other 787 partners also have fallen behind schedule, especially Mitsubishi, which is making the wings in Japan, and Alenia, making the rear fuselage in Italy.

"Alenia appears to be the major culprit at this time, and we understand that Boeing has sent an army of engineers to help get the program back on track," he wrote.

San Pietro said he was told that "the suppliers are unhappy with the costs of maintaining schedule" and are demanding more money from Boeing. He said that, having outsourced the fabrication of most of the 787's airframe, "Boeing has no internal capability to manufacture the major components," so it lacks leverage to oppose such supplier demands.

"This could result in additional increases in R&D costs if the suppliers get their way," he wrote.

San Pietro also said certification of Dreamlifter, the converted air freighter meant to transport pre-made 787 sections around the globe is not going well because of "vibration issues" during test flights.

A Boeing engineer in Everett, who asked not to be identified, confirmed to the Seattle Times that the Dreamlifter has experienced potentially serious flutter in flight. An attempt to fix this issue was the reason that Boeing took off the custom-built air freighter's winglets in December, the engineer said.

Boeing used the Dreamlifter to make that first delivery from Japan to South Carolina last week without certification.

"Certification still faces hurdles," San Pietro wrote, "The FAA told us that if certification could not be achieved then those flights would be halted."

San Pietro said two Asian airlines have already been given a heads-up to expect a delivery delay. All the initial deliveries of the new airplane are set to go to Japanese and Chinese airlines.

He also expressed concern that the sales cycle for commercial jets has peaked. As a result, Wachovia re-classified Boeing stock from "likely to outperform the market" to market netural.

Boeing shares closed at $85.60.

"Long-term, we believe that the B787 should be a home run for Boeing once it passes through this teething stage," San Pietro's report concluded. "However, given the current sensitive market environment (investors are still smarting from the A380 delays), we believe an admission of any delays by Boeing would put pressure on the stock."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com