Boeing lifts 787 R&D spending

By Kevin Done in London (Financial Times)

Boeing is being forced to increase its research and development spending by several hundred million dollars to overcome problems in its 787 Dreamliner development programme and meet its target for first delivery in May next year.

The world’s leading aerospace and defence group said on Wednesday it was continuing to “address and manage pressures with respect to supplier performance, schedule and weight”.

It said the risks inherent in aircraft development programmes “remained” but it still expected to meet its “contractual obligations” for the first delivery to Japan’s All Nippon Airways next May.

The first aircraft rolled off the assembly line earlier this month, and Boeing said on Wednesday that the first flight was now scheduled by the end of September, a few weeks later than forecast.

The group has had to despatch its own engineers to support some key suppliers and has taken back in house some work due to be outsourced.

The assembly effort is also being hampered by a shortage of fasteners as suppliers struggle to raise capacity to keep up with rising deliveries of new aircraft worldwide.

Boeing said its research and development spending would increase this year to $3.7bn from the $3.2bn-$3.4bn previously forecast as a result of the increased spending needed to keep the 787 programme on track. Spending was still expected to fall to between $2.8bn and $3bn next year but this too could rise owing to “certain development programme challenges”.

The 787 still looks set to become the most successful jet launch in the history of the aviation industry and has already booked 683 firm orders from 47 customers.

The US group is focused on meeting the 787 target for first entry into commercial service next summer, given the embarrassing and costly delays of more than two years suffered by Airbus, its European rival, in making the early deliveries of its A380 superjumbo. By contrast with the losses at Airbus and the resulting steep decline in earnings at EADS, the parent company, Boeing on Wednesday reported a further increase in profits for its second quarter and raised its guidance for the full year.

Boeing’s shares rose 3 per cent in early afternoon trading to a record $107.35.

Rising aircraft deliveries and improving productivity are more than compensating for the increased R&D spending for the 787. Boeing net profits in the first six months rose to $1.93bn from $532m a year ago, when the group was hit by heavy $1.07bn second quarter one-off charges.

Jim McNerney, Boeing chairman and chief executive, said demand for new aircraft remained very strong worldwide. The group was considering increases in production rates beyond those already planned. Boeing new aircraft orders could exceed 1,000 for the third year in succession.

Boeing announced a 34 per cent increase in operating earnings for its commercial aircraft operations in the second quarter from $719m to $960m and a 17 per cent rise for the first six months to $1.67bn. The commercial aircraft operating margin in the second quarter rose from 10.1 to 11 per cent.

The rising profitability of the commercial aircraft operations is being driven by higher deliveries, which rose by 13 per cent in the first six months from 195 to 220 and by improved productivity.

The group repeated its previous guidance for commercial aircraft deliveries to rise from 398 last year to between 440 and 445 this year and to between 515 and 520 next year with a further increase in 2009.

As a result of the rising commercial aircraft earnings the group raised its guidance for 2007 with group earnings per share forecast in a range of $4.80 to $4.95 up previous guidance of $4.55 to $4.75. Operating cashflow in 2007 is forecast to be greater than $6bn up from the previous guidance of more than $4bn.