Last Updated: April 9, 2008: 5:29 PM EDT
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Boeing's Dreamliner hits more turbulence

Investors shake off the latest delay in the rollout of its much-anticipated 787 passenger jet. Next time they may not be so forgiving.

By Michael V. Copeland, senior writer

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NEW YORK (Fortune) -- When Boeing Company announced Wednesday yet another delay in the production of its upcoming 787 commercial jet, company executives moved fast to convince Wall Street and its customers that it could deliver on its promises.

The hard sell worked - for now. Boeing stock surged 4% in trading Wednesday after the details of the delay - the third major slip in the production of the 787 - emerged and investors breathed a sigh of relief that the news, which they had expected, was not worse. Had Boeing announced a longer setback, company shares would likely have taken a beating.

But Boeing (BA, Fortune 500) doesn't have much room for error. Nothing short of the company's future in commercial jets is at stake with the 787, also known as the Dreamliner, as it battles archrival Airbus for control of the commercial skies.

The Dreamliner marks Boeing's first all-new airliner since the 777 in 1994. With its lighter weight, more streamlined design and efficient engines from Rolls Royce and General Electric (GE, Fortune 500), the Dreamliner is projected to be 20 percent more fuel efficient than comparably-sized aircraft. The materials used, chiefly the super-durable carbon-fiber composite, are projected to save 30 percent in maintenance costs

Airlines and airline leasing companies have ordered 892 Dreamliners, worth $145 billion at the list price, since it was made available for sale in 2003. That's a record for a new commercial jet - and evidence of how badly the industry needs and wants this plane.

Boeing can't afford any more delays. The latest production push puts the Dreamliner 15 months behind its original schedule. In the last six months, due to 787 delays and the loss of a major contract to competitors, Boeing's stock price has slipped almost 22 percent. If the company fails to hit its new schedule, expect a drubbing.

Company officials reassured investors Wednesday that no more delays are expected. The aircraft's maiden flight is now slated for the fourth quarter of this year. Deliveries of planes to Northwest (NWA, Fortune 500), Continental (CAL, Fortune 500) and other airlines signed on to buy them should begin in the third quarter of 2009, with 25 of the jets expected to be delivered by the end of 2009. That compares to 109 deliveries under the prior plan.

Pat Shanahan, a Boeing vice president who heads up the 787 program, told analysts during a conference call Wednesday morning that problems with partners supplying parts for the 787, ranging from metal fasteners to large sections of the fuselage, are at the root of the delays. Since January, when Boeing announced its last schedule slip, Shanahan has dispatched manufacturing experts to factories all over the world to solve the problems.

But Shanahan isn't guaranteeing that the necessary fixes have been made. "The issue is the capability in the supply chain to do the things that we need to have done, that's the untested part of this program," Shanahan told analysts. "That is where our energy and attention is."

The delays are worst for those airlines that are banking on the plane, which can fly the distance of a jumbo jet but has the capacity of a mid-size aircraft (about 250 passengers), to open up new routes. All Nippon Airways, the first customer for the 787 with 50 planes on order, is hoping to offer new routes in Asia - and isn't happy about the wait.

"We are extremely disappointed," as spokesman for the Japan-based airline said Wednesday. "We still have no details about the full delivery schedule, and we would urge Boeing to provide us with a 120% definitive schedule as soon as possible."

Investors would like to see one too. To top of page

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