February 20, 2013
Credit: John Croft
Paine Field Airport, next door to Boeing Co’s (BA.N) widebody plant north of Seattle, is getting crowded as 10 new 787 Dreamliners flank the runway, sparkling with contrasting and colorful liveries, including Poland’s LOT, Britain’s Thomson Airways and China Southern Airlines (600029.SS).
It is a similar story several thousand miles away, outside the company’s North Charleston, South Carolina final assembly building, where space is taken up by four 787s destined for Air India AIN.UL.
A month after the global fleet of the carbon-composite jets were grounded as U.S. and Japanese regulators carry out investigations into overheating batteries, the parked airliners are a stark symbol of deepening problems this is causing Boeing.
At Paine Field in Everett, Boeing plans to move some of its other planes around to make room for new 787s coming off its two production lines, and says it has room to store all the 787s it is making.
But Boeing is finding it increasingly difficult to convince Wall Street that its balance sheet is not going to be strained by the crisis. Until the Dreamliner is cleared to fly again, which could be several months, Boeing will be starved of delivery payments but still has to keep producing and maintaining the 787s it is making.
The world’s largest planemaker is being hit on a number of financial fronts, as well as suffering potential damage to its brand image. It is unable to deliver the five Dreamliners being produced per month, missing out an about $200 million in final cash payments from customers every month the 787 is grounded, while it has to pay out millions of dollars to clean, maintain and insure the parked planes. The delay may also force Boeing to postpone plans to double production by the end of this year.
Meanwhile, it is spending as much as $1 billion a month to keep the production line running, according to Russell Solomon, an analyst at Moody’s Investors Service, as the 787 program is still in the early, cost-heavy stage.
On top of that, it will have to pay the extra costs of putting engineers to work on the battery problem and the expense of reworking the 100 or so Dreamliners that have so far rolled off the production lines once it resolves the problem. Wall Street initially pegged those costs at $350 million to $625 million, but as investigations drag on with no clear indication of a fix, analysts have held back on updating those figures. The longer the delay, the more complex and expensive the fix is likely to be.
“They’ve got all that carbon fiber sitting on the ramp, when they’d like to have the cash,” said Carter Leake, an analyst at BB&T Capital Markets. “This is going to be a slow slog for a long time.”