Expert Predicts Financial Crunch May Lead To Canceled Orders

Despite continued optimism from Boeing officials and a record $275 million backlog of orders, experts expressed doubts relating to forecast 787 Dreamliner deliveries.

David Strauss of USB Investment Research reported Friday that "even prior to the Machinists strike that began in September, the slow pace of structural deliveries had led us to believe that Boeing was highly unlikely to hit its revised 787 flight test schedule. Boeing has now missed the scheduled assembly complete dates for the first three flight test aircraft and we believe the flight test program is unlikely to complete prior to early 2010."

Strauss said that his conclusions are based on tracking arrivals of shipments from the suppliers of major structural components delivered via the 747 Dreamlifter fleet to Snohomish County Paine Field Airport (KPAE) in Everett, WA, "including the wings from Japan, aft fuselage from Charleston SC, center fuselage from Italy (via Charleston), and forward fuselage from Wichita KS."

"We did not track any Dreamlifter flights into Everett in September as Boeing has apparently halted all 787 deliveries from its suppliers given the ongoing Machinists strike," Strauss said.

The Seattle Post-Intelligencer reports "Boeing had been expected to deliver 25 planes by the end of 2009, way down from the 112 planes it once thought would be delivered before the series of production-related delays set the program back at least 15 months. Even before the strike, some customers had been told some of their planes would be up to three years late."

Complicating Boeing’s future is the current economic crunch. "This has raised speculation about the ability of Boeing's customers to finance airplane purchases," Boeing Chairman and CEO McNerney said last week in a memo to Boeing employees.

"Thus far, we've seen minimal impact and nothing to change our fundamental assumptions for delivering our record backlog," McNerney wrote. "But it's a fluid situation and we will continue to monitor it closely," offering that Boeing is in a "strong position" to provide financing if needed.

In a note to clients, Goldman Sachs analyst Richard Safran said "We believe that the inability to obtain financing will cause customers to defer or cancel orders. As a result, we believe (Boeing) will lower production rates."

In his report, Safran cited a Goldman Sachs analysis that 40 percent of Boeing's backlog is scheduled to be delivered to customers that have a below-investment-grade rating, the P-I said. He said the revised delivery estimate "assumes nearly all customers below investment grade will be unable to obtain financing themselves."

Safran explained, "With many banks tightening on credit and leasing companies struggling, aircraft financing will likely be very difficult to obtain for many of the lower-credit-quality customers."

Boeing’s third quarter earnings report is expected on October 22, and is likely include an update on the status of its 787 production schedule.

Negotiations between Boeing and the striking Machinists are slated to resume possibly as early this weekend. The duration of the strike, reportedly costing Boeing $100 million a day, and its effects on the 787s future remain speculative.

FMI: www.boeing.com, www.goiam.org