Wednesday, January 20, 2010

Boeing Saving 787 deals

Now that Boeing is well into flight testing the 787, they are are now turning their attention to saving deals with customers. We all know that Qatar Airways were very unhappy about the status of their order with Boeing and were threatening to cancel their order for the 787-8.

Boeing was able to save that deal and make them happy. Now comes word that Air India will receive their first 787 in the 2nd quarter of 2011 and Polish LOT has reconfirmed their order for 8 787s. They'll receive 5 planes in 2012 and one each the following three years.

All this comes at a price. Macquarie Capital analyst, Rob Stallard, estimates that concessions, penalty payments and discounts related to the late delivery of the 787 will cost Boeing about $5.1 billion. Some of these cost will take various forms. For example Boeing will be setting up an MRO (maintenance, repair & overhaul) facility in Nagpur, India that will service both the 787 and 777. Both aircraft are flown or ordered by both Air India and Jet Airways. LOT will get some 787 services such as IT, training and servicing for the 787 for free or at a reduced price.

The key to saving future deals and landing new 787 orders will be how well the 787 performs in flight tests (ZA004 will be conducting fuel burn tests which would be key to showing that the 787 meets the performance parameters that Boeing is promising) as well as how fast and efficiently Boeing can ramp up production to 10/month.

Customers need to be reassured that 1) the airplanes does what Boeing promise it can do and 2) they can get the airplane when Boeing promises it can deliver it to them.

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