Friday, July 24, 2015

Boeing 787’s Improved Reliability Is Giving a Supplier Headaches

After early hiccups, Boeing Co.’s 787 Dreamliner is turning into a stellar performer for airlines. That’s creating an unexpected headache for the company that makes the plane’s cockpit displays.

The problem: Rockwell Collins Inc. finds itself with a bulge of unsold spare parts because the monitors used by pilots to track the jet’s radar and performance are proving more reliable than expected, Chief Executive Officer Kelly Ortberg said Friday.

Dreamliner operators are stockpiling fewer replacements, contributing to a 4 percent drop in aftermarket sales in the quarter ended June 30, Rockwell Collins said. The Cedar Rapids, Iowa-based company is tweaking forecasts for other new jets using the gear, such as Boeing’s 737 Max and 777X, Ortberg said.

“I’m not going to feel bad about building and designing a really good piece of equipment,” Ortberg said in a telephone interview. “We’ll go adjust the reliability that we had originally predicted to more of what we’re actually seeing in the marketplace.”

Slowing spare-parts sales have been an aviation-industry focus this week after United Technologies Corp. and B/E Aerospace Inc. blamed the aftermarket for weighing on results. Ortberg said Rockwell Collins struggled with weak sales because of the 787 and a drop in flights by operators of older-model business jets.

Stock Falls

Rockwell Collins fell 3.7 percent to $85.11 at 12:17 p.m. in New York, the fourth drop in five days and a move toward the stock’s steepest weekly decline since September 2011.

While profit in the company’s fiscal third quarter beat analysts’ estimates, the shares are under pressure because revenue of $1.29 billion was about $300 million short of the consensus figure, according to a note to investors by Jason Gursky, a Citigroup Inc. analyst.

The Dreamliner entered service in 2011 after more than three years of delays. With the plane’s all-new technology, Rockwell Collins had no track record on which to project a replacement rate for its spare parts, Ortberg said.

Now, the company will used the improved reliability to try to persuade operators of Boeing’s 757s and 767s to upgrade to new equipment. Jet kerosene at close to a six-year low is a lure for airlines to retrofit older planes they otherwise would have retired, Ortberg said.

“This improved performance is going to help their business case,” Ortberg said. “With depressed fuel prices, you’re going to continue to see the opportunity to fly those aircraft longer.”

(Julie Johnsson - Bloomberg Business)

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