The full financial impact of Boeing's growing commercial production and delivery crisis has been revealed, with costs estimated at $2.6 billion attributed to late deliveries and recovery plans.
The bulk of the costs, some $1.6 billion, are associated with penalty payments for late deliveries in the third quarter, as well as the impact of the "recovery plans" for the Next Generation 737 and other models instituted in early October. About $700 million is attributed to costs caused by "production inefficiencies" on the First 400 737-600/700 and -800s.
Another $1 billion charge is also expected, to cover the recovery plan and for further penalty payments for the fourth quarter of 1997 and the whole of 1998.
Delivery problems began to surface around August, caused by the growing strain on Boeing's workforce and an overstretched supply chain. By September, the delays began affecting all lines as Boeing struggled to ramp up production towards a target of 43 a month by the end of the First quarter of 1998, compared to a rate of 18 a month this time in 1996.
Operators already thought to be affected by delays include Air New Zealand, All Nippon Airways (ANA), Asiana, Bavarian, China Airlines, Delta Air Lines, Finnair, Garuda, Germania, International Lease Finance, Maersk, Southwest Airlines, United Parcel Services and Virgin Express. Deliveries of initial aircraft to Saudi Arabian Airlines are also believed to be delayed, although this is partially related to the airline's problems in restructuring Financial arrangements. The same problems have also held up delivery of Saudi MD-11 freighters, which are in storage at Long Beach, California.
The shutdown of the 747 line at Everett and the "re-balance" of the 737 line at Renton will have a major impact on Boeing's overall deliveries for the year. Boeing declines to reveal the exact shortfall, but says that, of between ten and 15 Next Generation 737s due to be delivered by year-end, only "between Five and nine" will actually be handed over. These are mostly expected to go to 737-700 launch customer Southwest, while non-US carriers Bavaria, Germania and Maersk, also affected by the late European certification of the aircraft, will suffer delays.
Boeing 747s in production for ANA, Asiana and Saudi Arabian are also likely to be delayed. In all, it is probable that deliveries of up to 21 aircraft, and possibly more, will slide into 1998.
The phased-in shut-down of the 747 line will end in mid-November. By then, Boeing hopes that suppliers will have had a chance to catch up. "We will be working on behind schedule and out-of-sequence work," says the company.
Aircraft will continue to move down the 737 line, but no new ones will be introduced for 25 days, to allow a sufficient backlog of parts to build up for the resumption of full-scale production in November.
The costly shutdowns come with news that the US Federal Aviation Administration is intensifying inspections of final-assembly work and stepping up scrutiny of manufacturing processes as the rate is forced upwards. The FAA is concerned that the rapid acceleration could be a repeat of the late 1980s when a similar build-up led to a rash of assembly errors.
The extent of the Financial damage showed up in Boeing's third-quarter results, which, after the charge left the group with an operating loss of nearly $1 billion, despite booming sales. After tax credits, the group was left showing a net loss of $696 million for the quarter and a profit of only $320 million for the First nine months of the year, compared with $1.86 billion this time a year ago.
Boeing says that the rise in costs has also come from rising research-and-development spending and programme losses on the Douglas Aircraft products which it has inherited. A decision on the future of these programmes, including that of the MD-95, is promised before the end of the year.
Source: Flight International