Howard Wheeldon Comments: Boeing Delays 787 Following Rolls-Royce Engine Holdup - Bloomberg Businessweek Online

Boeing Co. postponed delivery of its 787 Dreamliner for the sixth time after Rolls-Royce Group Plc was unable to supply an engine to complete flight testing.

The first plane, due before the end of this year, will now be handed over in the middle of the first quarter of 2011, Boeing said in a statement today. Rolls said the delay wasnt related to a 787 engine blowout on a test bed in Derby, England, which this month which forced it to shut the site for repairs.

All Nippon Airways Co., the Dreamliners maiden customer, said the holdup was regrettable. The composite-plastic plane is already more than 2 1/2 years late following delays caused by the use of new materials, parts shortages and redesign work involving Italian sub-contractor Finmeccanica SpAs Alenia unit. Airlines just keep waiting and waiting, said Ryota Himeno, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. This new delay will force some tough changes to carriers operations. Rolls-Royce fell as much as 2.1 percent and the stock was trading 1.2 percent lower at 552.5 pence as of 12:17 p.m. in London. Boeing rose 0.9 percent to $61.32 yesterday in New York.

The Chicago-based planemaker said last month that it might postpone the handover of the first 787 by a few weeks into next year because of delays relating to instrumentation and the horizontal stabilizers that keep the jet level. The latest delay, which takes into account those issues, will not affect financial guidance, it said.

Final Tests The delivery-date revision follows an assessment of the availability of an engine needed for the final phases of flight test this fall, the U.S company said. While Boeing works closely with Rolls-Royce to expedite engine availability, flight testing across the test fleet continues as planned. A $17 million Trent 1000 engine like the one that failed in Derby on Aug. 2 has a maximum thrust of 75,000 pounds (334,000 newtons), a fan diameter in excess of nine feet (2.7 meters) and weighs more than five tons, Rollss web site says. The model competes with General Electric Co.s GEnx on Dreamliners. Rolls-Royce confirms that the engine availability issue is unrelated to the test-bed event which occurred earlier this month, the U.K. company said today in an e-mail to Bloomberg, without saying what had caused a turbine to be unavailable.

Rolls spokesman Craig Taylor said on Aug. 17 that the engine failure would have no impact on the 787s entry into service, and that a modification was already in place for later Dreamliners that would address the problem.

Howard Wheeldon, senior strategist at BGC Partners in London, said that while its not clear what caused the blowout, some fix is likely to be required to the Trent 1000. Long Way Yet We are concerned at the prospect that not all problems within the supply chain may yet have been resolved, he said in a note to investors. From a profitability point of view there is still a very long way to go yet in the 787 program. The Dreamliner made its first appearance in Europe last month, for the Farnborough Air Show in the U.K. Given the success of the flight-test program so far, it is regrettable to hear of the delay, Megumi Tezuka, a spokesman for Tokyo-based ANA, said by phone. However, we trust that the time will be used to deliver the best possible aircraft in the shortest possible timeframe. Compensation Claims

Japan Airlines Corp., due to receive its first 787 in March, hasnt been told of any delays, said spokesman Satoru Tanaka. Korean Air Lines Co., with 10 787s on order, hasnt received any notification either, said spokesman Cho Hyong Chul.

In Europe, Air Berlin Plc spokesman Hans-Christoph Noack said theres no indication of a holdup, though the carrier will know more closer to handover dates that begin in 2015. OAO Aeroflot spokesman Irina Dannenberg said the Russian companys 22 orders wont be affected as deliveries start in 2016.

Boeing already faces compensation claims for late 787s. National Aviation Co. of India Ltd., Air Indias state-owned parent, plans to seek about $840 million for a delay of almost three years, it said this month. The planemakers penalties to 787 customers may reach about $5 billion, Myles Walton, an analyst at Deutsche Bank AG in New York, said before the latest delay. The company will probably seek to satisfy those claims through discounts, maintenance agreements, options, purchase rights, delivery-slot availability and other means instead of cash payments, he said.

A350 Output The Dreamliners introduction prompted Airbus SAS, Boeings larger rival in commercial aircraft, to work on the A350, a wide-body jet also made of composite materials. Airbus has slashed its A350 production targets compared with those set in 2007, Les Echos said today, citing sub-contractor estimates.

The Toulouse-based company now plans to make 10 A350s in 2013, compared with a previous target of 18, the newspaper said. Airbus cut forecasts for 2014 and 2015 to 40 and 60 from 51 and 83 respectively, according to the report. Airbus cant comment on the figures because it hasnt disclosed the latest delivery plans, spokesman Stefan Schaffrath told Bloomberg. The planemaker routinely reviews production to assess the economic environment and its resources, he said.

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