Jim McNerney, Boeing CEO, James Bell, Boeing CFO and Scott Carson, President of Boeing Commercial Airplanes, is updating the press and market analysts at 1:30 pm.
1:31: Hold music. I'd describe its style as "jazz-fusion-eurotrash".
1:34: The call has started!
1:36: McNerney says delivery is delayed six months to next November-December. Meanwhile, first flight is delayed from November-December to 1Q of 2008. The delays became "apparent" to Boeing's executive team at a program update review held earlier this week. I must say I'm highly surprised that they were unaware of such a huge delay until just this week!
1:38: Carson says travelled work and parts availability on airplane number one is driving the delay. This means software coding issue is not the problem. "Individual installation jobs have taken longer than planned to complete," he says.
1:42: Carson says airplane came off its jacks on Sunday, which means they finally put it back o its own landing gear.
1:43: Coding IS still a problem. An "interim" load is in the cockpit. But it's apparently not the main issue driving the six-month delay.
1:44: Carson also says that all 109 aircraft can still be delivered by the end of 2009, which, given the circumstances of a six-month delay for first delivery, seems very ambitious.
1:45: Bell, the CFO, says earnings guidance will not be changed because of the delay. Thirty to 35 deliveries will shift from 2008 to 2009 because of the delay.
1:47: Question one, by Howard Rubell (sp?): He asks about customer response. Carson says early response is disappointment mixed with understanding. The reaction is "as we expected".
1:48: Q2: What about changes in distirbuted supplier management approach? Carson says "clearly have learned some things about how we could to this job better in the future". Structural partners are fully engaged in the current plan, he adds.
1:50: Q3: by Ron Epstein of Merrill Lynch: Why are you confident that 109 by 2009 is achievable? Carson says production process moves forward, but it's just the flight test schedule that has been delayed. Carson adds that they've now completed primary structure on airplane one and are now focused on systems integration. Also, and this is important, Carson says they have put margin back in the flight test program. "We have much more confidence in our ability to achieve this plan," he says. (Click here for my story on how the previous plan left Boeing with extremely little room for manuever during the flight test phase.)
1:54: Q4: Robert Singarn (sp?) with CreditSuisse, asks for details about cost impact from delay penalties. McNerney says it's a mixed bag because some customers demand penalties and some decide to work with the manufacturer. For suppliers that are meeting schedule, Boeing will treat them "as we normally would" and "we're going to try to help them where it makes sense."
1:56: Q5, by Heidi Wood, of Morgan Stanley, asks, as I did above, why not be more conservative about 2009 delivery plan? Carson repeats that it's not a production problem, so there's no reason to delay production schedule.
1:58: Analysts are clearly skeptical about Boeing's claims that the delay will not cause a financial impact.
2:00: Biggest suprise of the call so far: the original production plan -- 109 deliveries by the end of 2009 and full rate production starting 2011 -- will remain intact despite six-month delay for flight test. (Although 30-35 aircraft deliveries will be shifted from 2008 schedule to 2009 schedule.)
2:05: George Shaprio, the analyst, theorizes that accounting rules allow Boeing can shift penalty payments into capital costs, so analysts never get to see it. Bell says that's a simplistic explanation, but, basically, yes.
2:07: Another critical point is made. The analyst (name unknown) makes an off-hand point that the current schedule means flight test and production will now overlap considerably. McNerney says his staff has considered change incorporation across, say, 35 aircraft instead of 22, and "that is a major risk".
2:09: The analyst follows-up, and asks: "Why are you taking that risk?" McNerney says it's rooted in the commitments we made to our customers. He adds that the supply chain also expects Boeing to perform and a production delay would be unfair to them, too.
2:11: Bell says they'll complete "40 airplanes or so" at the time of certification in November-December 2008.
2:12: Carson says that development for 747-8, 787-9 and 787-3 will also not be delayed as a result of extra resources pouring into 787-8.
2:12: Carson says Airplane One will be the first one to fly.
2:14: Time for the press to ask questions.
2:16: Carson said they've added only one month for the flight test schedule. They presumably still must complete the 3,700 hours ground tests and 3,100 of flight tests during that time.
2:18: Lynne Lunsford, of Wall Street Journal, asks if delay means Boeing got the supply chain strategy wrong. McNerney says: "As we work our way through it, we're going to be glad when we get to the other side of the start-up."
2:22: Here's my question for Carson: Boeing obviously accepts overall responsibility for the delay, but is the balance of mistakes made that led to the delay greater on Boeing's management of the supply chain or on errors of execution by the supply chain itself?
2:23: Carson says the "silver-lining" is the delay gives them much more time to get the software mature.
2:26: Carson says the delays are caused by the travelled work on Airplane One alone. The following aircraft will not be affected.
2:30: NPR asks: How embarassing it is that Boeing has a delay? Er, with all due respect, how embarassing is it to ask such a pointless question!
2:32: The call is concluded.