Boeing set to announce new 787 delays

NEW YORK (Reuters) - Boeing Co (BA.N) is expected to announce further delays to its new 787 Dreamliner next week, or shortly after, when it takes into account the damage of a two-month strike by its machinists and a number of production problems nagging at the program.

The U.S. plane maker has already said the first 787 test flight won't happen until 2009, missing its end-of-year target, and most industry-watchers think first deliveries of the carbon-composite plane won't take place until well into 2010, about two years after the original target.

The latest delay will be the fourth major schedule slip on the airplane, severely testing the goodwill of Boeing's customers and the faith of Wall Street analysts, both of which championed the fuel-efficient plane early in its development.

But the main risk for Boeing is that a further delay will also seriously upset customer airlines, leading to deferrals of orders or outright cancellations.

A number of problems have beset the program, from shortages of bolts to hold the plane together, to software glitches and shoddy work from suppliers.

But the real issue, according to industry experts, is that Boeing's plan to outsource almost all production of the plane's structure and components has backfired because suppliers without Boeing's long engineering experience simply could not do the job well enough, and rushed to meet deadlines.

"It was over-ambition from the word go," said Richard Aboulafia, an analyst at consulting firm Teal Group. "The problem with an unrealistic schedule is that it keeps creating its own horrible ripples."

Boeing will likely blame the next delay partly on the strike by its machinists -- which recently shut down its Seattle area plants for 58 days -- and to continuing problems with suppliers, which seem to have multiplied.

"The more suppliers rush to meet an unrealistic schedule, the more difficult the remedial action needs to be to get things right," said Aboulafia.

The plane is also heavier than it was designed to be, which poses a problem for Boeing hitting the market-changing range and fuel-efficiency promises it made to customers, and could presage further delays.

"There remains a feeling among some within that Boeing still doesn't 'have its arms around the 787 program,'" said industry consultant Scott Hamilton in a recent commentary on the issue.

Boeing said at the end of the machinists' strike in early November that it would update all its delivery schedules, but it hasn't said when that would happen.

"We are currently conducting an assessment of our program schedule and when it is complete, we will communicate it," said the Boeing spokeswoman for the 787 program.

CANCELLATION RISK

The airlines most affected are those at the front of the line for 787 deliveries, including Japan's All Nippon Airways (9202.T), rival Japan Airlines Corp (9205.T) and U.S. airlines Northwest, now part of Delta Air Lines Inc (DAL.N), and Continental Airlines Inc (CAL.N).

Delta is reportedly looking to scale back Northwest's 787 orders and replace them with larger 777s, although Delta has not confirmed that or communicated any changes to Boeing.