Can Boeing Overcome These Production Problems?
Even though Boeing (NYSE:BA) has made up for production delays of its 787 aircraft by streamlining production and increasing its delivery rate, the plane hit two major roadblocks in the last several days that indicate the aerospace company’s production problems are not yet over.
What is Happening to Boeing?
The most recent manifestation of Boeing’s production problems materialized last Tuesday. A United Airlines (NYSE:UAL) 787 traveling from Houston to Newark was forced to land in New Orleans after one of its six electric generators failed mid-flight. Subsequently, the Federal Aviation Administration required all 787 fuel line connectors to be inspected for fuel leaks and other malfunctions. While aviation experts framed these events as “minor hiccups” typical of new planes, according to The New York Times, they are also symptoms of a larger concern.
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In a research report seen by the publication, UBS aerospace analyst David E. Strauss explained that the cost of building the 787 may not be decreasing fast enough for the company to profit off individual planes by the date Boeing projected, 2015. According to his estimates, over the next three years Boeing could spend $4 billion to $5 billion more on the 787 program than the revenue it generates.
If the company cannot bring down costs more quickly as the production process is streamlined further, the planes may not be profitable until 2021. As of now, the basic model of the 787 has a list price of $206.8 million. However, Boeing spends $232 million on each plane and on average charges customers half that amount…