Boeing braces for a 787 nail-biter

Even as Boeing posted blockbuster quarterly earnings of more than $1 billion Wednesday, top executives made it clear that the company's revolutionary new 787 Dreamliner is in its riskiest and most nerve-racking phase of development.

Company leaders say the program is on track and money is rolling in as production on all airplane programs ramps up. But these signs point up the significant challenges that remain:

• Development of the new airplane, made from innovative carbon-fiber reinforced plastic, is costing more than expected. The company has allocated an extra $300 million to $500 million to cover increased Dreamliner program spending this year.

• Boeing needs more bodies than previously planned to accomplish all that must be done in a compressed schedule. The number of engineers working on the program has begun to go down, but more slowly than anticipated.

• And first flight is now pushed back a month until the end of September — chief executive Jim McNerney conceded it could even slip into October — leaving a bare eight months, maybe fewer, to complete the tests before the first scheduled delivery.

"It is aggressive, but it hangs together," said McNerney. "And so off we go, and we think we can do it."

With more than $7 billion in cash on hand, Chief Financial Officer James Bell offered reassurance that the company has the financial resources to cope with just about anything that might go wrong with the Dreamliner.

"In case something does go really, really bad, we will be able to deal with it," Bell said.

The 787 details didn't faze the stock market. Boeing's blockbuster earnings figures boosted the stock more than $3 to $107.23 when markets closed Wednesday.

The quarterly financial numbers came in high, handily beating Wall Street projections. They were driven up by swelling commercial-airplane revenues as more airplanes roll out of the factories in Everett and Renton.

Boeing delivered 114 airliners in the three-month period, up 18 percent from a year ago.

In addition, the commercial unit is swamped with orders. Boeing has more than $200 billion in jet-airliner orders on its books, about half of them for the Dreamliner. Adding in defense-side orders, the company order backlog stands at $279 billion.

The rosy view of Boeing's future depends on the 787, and on that score McNerney emphasized the positive.

"We are beyond what I'll call the invention activities. We've proven the airplane's technologies, especially its large composite sections and its major systems," said McNerney. "It took longer and cost more than planned, but we are confident we know how to build this airplane."

In addition to increasing the projected 787 spending to cover higher costs this year, there is "upward pressure" for next year, too, said CFO Bell. That would cover the potential for "something that we had to deal with in flight test."

And he outlined where the extra money must go this year.

He said Boeing is adding laboratory capacity in Seattle to speed the testing of airplane systems that must work well together. The systems testing will take longer than originally planned, he said.

The company also has to redesign some parts of the airplane — including parts of the wing and the window frames — to reduce weight.

McNerney said the airplane remains "a percent or two" above the target weight, though still well within bounds that will allow the jet to meet the range and fuel-burn performance guarantees Boeing has made to its customers.

Also, additional money is being spent on wages and overtime for overworked engineers and mechanics.

At this phase of an aircraft program, with the design essentially complete, the engineering work force typically shrinks dramatically. But as well as piling people into its own efforts here, Boeing is continuing to send people to assist its worldwide supplier partners, Bell said.

"Engineering head count has already began declining on the 787, but at a slower rate than planned," Bell said.

Still, provided Boeing ultimately delivers, the Dreamliner is an assured winner. It has 683 firm orders from 47 customers.

"Despite higher spending, the tremendous market success we have enjoyed with the 787 makes the current business case for this airplane even stronger than when we launched the program," McNerney said.

He said the Dreamliner program has "a lot of hard work to do in a compressed timeframe" before first flight.

The airplane systems and all the flight-critical software have to be thoroughly tested. And major structural components such as the fuselage, moveable flaps and wings have to be tested for strength.

"It's a bit of a backed-up schedule," McNerney said.

If first flight slips into October, could Boeing still deliver the first Dreamliner to All Nippon Airways next May? Boeing's chief said there are contingency plans for that.

"We feel we could still deliver the plane on time in May 2008 even if we pushed a little beyond" the end of September, McNerney said.

"But that's not the plan. The plan is to fly by the end of September."

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