Costs climb as Boeing pushes to reduce weight of new jet

The outlook for Boeing Co., which is striving to retake the No. 1 spot in the commercial airliner business, clouded a bit Wednesday when the company warned of rising costs in its key 787 Dreamliner program.

The Chicago-based aerospace company -- Southern California’s largest private employer -- said supplier delays and problems getting the jet’s weight within specified limits would add hundreds of millions of dollars this year and next to development costs.

“We are at that point in the 787 development program where weight is a dogged issue,” Chief Executive James McNerney said during a conference call with analysts. “We know what we have to do there.... We know how to build this airplane.”

McNerney said Boeing was still expecting to deliver the first Dreamliner on schedule in 2008.

Boeing first warned of difficulties with the 787’s development in July at the Farnborough International Airshow in Britain. But analyst Robert Stallard of Banc of America Securities predicted that McNerney’s update on the 787 “could cause angst” among investors. And it did, pushing the stock down $2.73, or 3.3%, to $80.86.

Stallard noted that Wall Street was nervous about aircraft delays after the “debacle” at Airbus, where top executives have lost their jobs over repeated holdups in the European plane maker’s A380 super-jumbo jet program.

The 787 “has always been a very aggressive program, and any signs of any chance at all of a delay or performance shortfall is going to be regarded as a risk,” said Richard Aboulafia, an aerospace consultant with Teal Group. “But they also said ‘on time and on spec.’ ”

The 787 development news overshadowed what otherwise was a positive third-quarter earnings report for Boeing.

Although the company said net income fell 31% from a year earlier to $694 million, the drop-off was the result of previously disclosed costs associated with ending its money-losing Connexion in-flight Internet service.

The per-share results of 89 cents easily topped the Wall Street consensus forecast of 63 cents, and even with the added 787 spending, the company boosted its profit and revenue guidance for 2007.

Meanwhile, Boeing’s revenue rose almost 19% to $14.74 billion as aircraft sales jumped 45% and its order backlog grew to a record $229 billion, including a record $154 billion backlog of commercial aircraft orders. There are firm orders for 432 Dreamliners from 34 customers, Boeing said.

The fuel-efficient 787 is the cornerstone of Boeing’s effort to overtake Airbus, the world leader in commercial jetliner production. With Airbus struggling with the 550-seat A380, some analysts think that Boeing could reclaim the top spot in aircraft delivered by 2008.

The extra spending needed to keep the 787 program on track will help increase Boeing’s research and development costs to $3.1 billion to $3.2 billion this year and $3.2 billion to $3.4 billion next year -- well above the previous forecast of $3 billion a year. About half of that spending is going toward developing a stretch version of the 747.

“This should not be viewed as a negative and in fact improves the odds of post-2009 market share gains versus the Airbus A380,” analyst Byron Callan of Prudential Equity Group wrote.

Boeing’s defense and space business recorded operating income of $879 million in the third quarter. That was down from $1.3 billion in the same period of 2005, which included a one-time gain of $569 million from the sale of Boeing’s Rocketdyne rocket-making business in Canoga Park. Much of Boeing’s defense work is located in the Southland.

Boeing raised its 2007 earnings forecast by 20 cents a share to between $4.45 and $4.65 and upped its revenue forecast to a range of $65.5 billion to $66 billion.

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martin.zimmerman@latimes.com