Boeing Lining Up Buyers for Early Overweight Dreamliners

Boeing Co. has lined up buyers for 10 of the early, overweight 787 Dreamliners whose years in storage made them emblems of the jet’s factory woes and a drag on profit, people with knowledge of the plans said.

The planes, dubbed “terrible teens” for their assembly struggles and their places near the start of the production run, have an assessed value of roughly $1 billion, or less than half the catalog price. The original customers balked because the aircraft were too heavy, limiting their range.

Ethiopian Airlines is in advanced discussions to buy eight of the early-build 787s, said four people who asked not to be identified because they weren’t authorized to speak publicly. Air Austral, based on France’s Reunion Island in the Indian Ocean, has already ordered two of the jets, the people said.

Unloading the 787s would be a boost after the aircraft sat outside Boeing’s largest Seattle-area factory for about five years. They were visible symbols of the delays on the Dreamliner program, with black plastic shrouding their windows and 17,000-pound (7,700-kilogram) counterweights dangling from the wings in place of engines to keep the jets balanced.

“We continue to see interest in the early-build 787s,” said Marc Birtel, a spokesman for Chicago-based Boeing, when asked about the status of negotiations for the teens. He declined to comment on specific contacts with airlines.

Air Austral is buying two 787-8 Dreamliners, said Laure Marsac, a spokeswoman for public-relations firm Expression in Paris, who had no details about which planes were involved. Addis Ababa-based Ethiopian didn’t respond to e-mailed requests for comment about the planes.

Assessed Value

Together, the deals would be worth about $1 billion, based on estimates of the planes’ assessed value by Chantilly, Virginia-based aviation consultant Avitas. All the Dreamliners are the 787-8 model, which has a list price of $218.3 million before the discounts typical in the aerospace industry.
 
Boeing fell 0.2 percent to $154.38 at the close in New York, paring an earlier decline. The stock has gained 19 percent this year, the most among the 30 members of the Dow Jones Industrial Average.
 
The 787 is the world’s first airliner built mainly from composites instead of traditional aluminum.

The jet ran more than three years late while Boeing worked out kinks with the carbon-fiber materials, onboard systems and a manufacturing process that relied more heavily on suppliers.

Updates Needed
 
Eager to convert a record order backlog into cash, Boeing stepped up production before the Dreamliner was certified as airworthy. The planemaker wound up having to retrofit about 60 of the first jets to match design changes made during flight testing.

The teens required the most extensive work, including heavy structural reinforcements to bolster their composite shells, and were set aside while Boeing focused resources on later models that it could get more quickly to customers. Carriers including ANA Holdings Inc.’s All Nippon Airways and Transaero Airlines eventually opted to take other aircraft.

Boeing has never disclosed the weight difference for the teens. Once the modifications are done, their range will be about 1,000 nautical miles (1,850 kilometers) shorter than later 787s, Avitas has estimated. Boeing advertises a range of 7,850 nautical miles for the 787-8, which seats 242 passengers.

Market Proved
 
“Not all planes have to have the longest legs in the world to solve a problem” for carriers deciding which jets to buy, Howard Rubel, a New York-based analyst with Jefferies LLC, said in a phone interview. “The company said there’s a market for these aircraft, and it looks like they’re going to prove it.”

Ethiopian, the 787’s first African customer, is considering ordering more Dreamliners and other Boeing twin-aisle models as it expands its wide-body fleet, two of the people said. Airbus Group NV, Boeing’s rival based in Toulouse, France, countered with an offer for discounted A330 jets, the people said.

Airbus had no immediate response to e-mailed requests for comment on Tuesday.
 
For the Dreamliner teens, the loss of performance undercut a central part of the model’s appeal. Boeing has wooed airline customers with a promise that the 787 would deliver a 20 percent boost in efficiency over planes of comparable size.

Selling and delivering the teens would reduce Boeing’s 787 backlog, which stands at about $7 billion, according to a Feb. 12 report from David Strauss, a New York-based UBS Group AG analyst.
 
Ballooning inventory and production costs have left the Dreamliner unprofitable and been a drag on Boeing’s cash flow.

Cash Consumption
 
Strauss expects the 787 program to use $2 billion in cash during 2015, an improvement from the $5.5 billion consumed last year, in part because of a decline in 787 inventory.
 
“We’re working through them in a prudent fashion,” Chief Financial Officer Greg Smith said of the teens’ issues during a Jan. 28 earnings call. “We do expect to deliver three or four this year.”
 
Besides the 10 teens now being readied for sale, Boeing has one other plane from that production batch now in flight tests. FAA documents show that it is configured as a VIP aircraft.
 
Boeing has begun work to make three other teens flight-worthy, said Uresh Sheth, who tracks Dreamliner production for the All Things 787 blog.

The planemaker has space available at its factory in Everett, Washington, to repair additional teens if customers want to speed delivery, Sheth said in an e-mail. He reported the Air Austral order earlier this month, without saying where he got the information.

(Julie Johnsson - Bloombergt Business)