Lengthy Dreamliner 787 probe, fixing problem, may cost Boeing dear

Jan 26 2013, 15:59 IST
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The slow progress of investigations into battery problems on Boeing Co's 787 Dreamliner jets suggest the new plane could be grounded for months, raising fears that the financial hit to Boeing will be greater than had been initially predicted. (AP) The slow progress of investigations into battery problems on Boeing Co's 787 Dreamliner jets suggest the new plane could be grounded for months, raising fears that the financial hit to Boeing will be greater than had been initially predicted. (AP)
SummaryThe slow progress of investigations into battery problems on Boeing Co's 787 Dreamliner jets suggest the new plane could be grounded for months, raising fears that the financial hit to Boeing will be greater than had been initially predicted.

it calculates it will break even on the program. At planned production rates that would take about a decade.

If Boeing makes fewer planes than it has budgeted for and is not getting cash in the door for deliveries, that could add up to more than $1 billion per month in "incremental working capital spend," according to Solomon at Moody's.

With $6 billion of cash on its balance sheet at the end of the third quarter, Boeing looks strong enough to deal with that, but the longer it goes on, the more the worries mount, said Solomon.

"If a billion to a billion and a half of incremental working capital consumption is the right number in terms of cash burn every month, you start getting into three, six months out and it has a bigger impact," he said. "My guess is that they would have to potentially cut the production rate if that were the case."

Cutting production of 787s, or halting it altogether, would be a huge blow for a plane program that is already three years behind schedule.

"The market really only cares about one thing right now and that is, will production change?" said Leake at BB&T. "I believe it will not, Boeing can't afford to do that. It's too expensive to ramp down and ramp up again."

Production delays would ripple down the supply chain, could cost jobs and could even mean the loss of future orders if airlines lose patience with Boeing.

Rubel at Jefferies said this is unlikely, but in the worst case scenario could result in a $5 billion write-off for Boeing, if it loses orders it was counting on to offset expenses it has already laid out in building the 787.

That would take its toll on earnings and likely mean taking a provision against those losses.

"It will impact equity investors," said Solomon at Moody's. "The company will grow much more slowly if they can't ramp to 10 a month and the program is not successful."

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