Dallas: As the United States government regulators investigate Boeing's 787 Dreamliner and company engineers search for solutions, investors and analysts are grappling with the bottomline question: How much will the plane's grounding cost?
The answer depends on what probes in the United States and Japan uncover, with scenarios ranging from a quick resolution if a few defective parts have to be swapped out to a drawn-out inquiry that requires a fundamental redesign.
The worst case scenario: The Dreamliner's problems run so deep that chief executive Jim McNerney has to write off about $5 billion in anticipated revenue, said Howard Rubel, a Jefferies & Company analyst who puts the odds of that at about 4 per cent.
The costs are likely to be much less, in the hundreds of millions of dollars, say investors and analysts, including New York-based Rubel. That would let Boeing, which reports 2012 earnings on January 30, reap the rewards of what he estimates was a $25 billion investment in the plane, clearing the way for a profit surge and more money for investors.
"As far as dividend growth, cash flow and share buybacks, I think that's still intact," said Gary Bradshaw, a fund manager at Hodges Capital Management in Dallas, who added to his Boeing stake after a fire broke out on a Dreamliner on January 7.
US investigators are still searching for what caused the fire in the lithium-ion batteries on a Japan Airlines 787 in Boston that day and a fault that forced an All Nippon Airways plane to make an emergency landing in Japan. The jet debuted commercially in 2011, and 50 have been delivered so far.
The grounding will most likely cost Boeing $550 million, Rubel wrote in a report with a range of potential expenses, from $125 million to reimburse carriers that lease replacement jets to the $5 billion write-off. Doug Harned, a Sanford C. Bernstein analyst in New York, estimated Boeing's expense at less than $350 million.
With probes still underway by the US Federal Aviation Administration and the National Transportation Safety Board, McNerney will face questions on this week's earnings call that he won't be able to answer. Chicago-based Boeing is due to give its 2013 financial forecast and delivery plans.
"We are working this issue tirelessly," Chaz Bickers, a spokesman, said of the 787. "At the same time, we are keeping our other teams keenly focused on their own program performance and customer commitments."
Earnings per share may rise more than 50 per cent to $7.69 by 2015 from $5 in 2012, the average estimate of four analysts surveyed. Analysts project that Boeing garnered $81.7 billion in sales last year, which may grow to $87.9 billion in 2013.
The planemaker has said it plans to double 787 output to 10 a month this year as it pares a backlog of about 800 unfilled orders. That's one piece of the company's 60 per cent production boost in the four years through 2014 to meet demand from airlines for more fuel-efficient planes.
"You look out a couple of years and they could be earning $8 a share, and then you really have a cheap stock," said Bradshaw, at Hodges Capital Management.
Boeing closed on January 25 at $75.03, down 3.4 per cent from the 52-week high on January 4. On a price-earnings basis, Boeing's discount to Airbus parent European Aeronautic Defence & Space Company has widened to about 22 per cent now from about 8 per cent at the end of 2012.
Bernstein's Harned estimated that Boeing had set a 787 delivery target of 93 jets for 2013. The planemaker gets a big chunk of the price before delivery, so even if 20 jets push into 2014, only about $1 billion in cash flow would be delayed, and that would be quickly made up, Harned said in a Janember 22 note.
The shares haven't fallen further in part because investors are used to Dreamliner woes after seven delays pushed back its entry into service by more than three years, according to Carter Leake, a BB&T Capital Markets analyst in Richmond, Virginia.
In a worst-case scenario, the model may be grounded more than three months, which could force a production slowdown, said Leake, a former pilot who also worked for Canadian planemaker Bombardier. While Boeing continues to assemble 787s, the grounding has forced a halt in deliveries, because buyers couldn't fly away in their new planes."The market is in a period of disbelief that it could be anything other than a quick fix, despite the fact that we're in an open investigation," Leake said.
Boeing already felt the weight of investors' 787 dismay before the grounding. Through last week, the shares had slumped 26 per cent since the day before the planemaker disclosed the first Dreamliner delay, in October 2007.
Any reworking of the Dreamliner would come alongside the development this year of the 787-9, a stretched version of the plane, and the upgraded 737 Max, which is scheduled to enter airline fleets in 2017.