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787 glitch may pressure Boeing production outlook

By Kyle Peterson

(Reuters) - Boeing Co faces fresh questions over whether it can meet what was already viewed to be an overly ambitious production schedule for the 787 Dreamliner, after the aerospace company said it had found a problem with the jet's fuselage.

The world's second-largest commercial plane-maker said it can fix what it described as "incorrect shimming" and stood by its goal to make 10 Dreamliners per month by the end of next year. But some analysts say the target was unrealistic to begin with and a new glitch will only slow production more.

"We don't know if this will impact production," EarlyBirdCapital Managing Director Alex Hamilton said. "But if you have to go back and correct something and possibly change production going forward, it seems to have a good chance, in our opinion."

Hamilton, whose company does not own Boeing shares, is among many experts who doubt Boeing's ability to hit its 787 production target.

The company makes 2.5 Dreamliners per month. It expects to boost monthly output to 3.5 in the second quarter, and five by the end of 2012.

Boeing shares fell 1.3 percent to $75.38 on the New York Stock Exchange.

Boeing's 787 Dreamliner is the world's first commercial airplane made largely of lightweight carbon composites.

The plane, which boasts greater fuel efficiency than other airplanes on comparable missions, has been plagued by development and production delays. Problems have included a shortage of nuts and bolts in 2007, a 58-day labor strike in 2008 and a fire on a 787 test flight in 2010.

The plane, which entered service last year, is about three years behind its original schedule. Nevertheless, it is a hit among customers. Boeing has taken 870 orders for Dreamliners.

The latest issue, which follows a highly publicized design flaw that caused wing cracks on the Airbus A380 superjumbo, also raises questions about manufacturing practices at the Boeing plant in South Carolina that makes the fuselage section with the problem, one expert said.

"This is strictly a production problem," said Hans Weber, president of Tecop International, a technology management consultancy. "This is not a design problem. This is not even a production process problem. This is a problem of people improperly doing the assembly."

Weber said it is hard to know exactly how serious the problem is based on Boeing's description.

BOEING SAYS MAKING PROGRESS

Boeing, which is inspecting the airplanes, explained that "incorrect shimming" was performed on a support structure on the aft fuselage. Shims are used to close tiny gaps in joints.

"We have the issue well-defined and are making progress on the repair plan," Boeing spokesman Scott Lefeber said on Sunday. "There is no short-term safety concern. Repairs, should they be needed, will be implemented in the most efficient manner possible."

Lefeber declined on Monday to say how many airplanes are being inspected, saying only that Boeing was working its way through the production line. A report from Flightglobal said three planes were affected.

Lefeber said that, in some instances, Boeing had discovered signs of "delamination," which occurs when repeated stress causes laminated composite materials to begin to separate.

The problem occurred in the aft fuselage section of some planes. That part of the 787 is made at a Boeing plant in South Carolina, where Boeing has a second Dreamliner assembly plant.

Boeing purchased the plant in 2009 from Vought Aircraft Industries.

"We've already taken appropriate steps to address this issue there," Lefeber said, referring to the South Carolina factory.

LAUNCH CUSTOMER SAYS ITS 787S ARE OK

Boeing has delivered five Dreamliners, all to its launch customer All Nippon Airways <9202.T>. ANA said is has inspected the aircraft and that they are operating normally.

Richard Aboulafia, an aerospace analyst at Virginia-based Teal Group, said problems related to the 787 are often magnified in the public eye because the plane incorporates new technology.

"There are people who are concerned about the use of composites. It's a minority view," Aboulafia said.

"Delamination, of course, goes to the very heart of the risk associated with this particular technology - composite materials in primary structures," he said.

RBC Capital Markets analyst Rob Stallard said the shimming issue spoke to the integrity of the composites used to make the 787, but he did not think it was a serious issue that would disrupt the program.

"When you think of the big problems we've seen on the 787 over many, many years, this just looks like noise," Stallard said. "I'm sure these things happen in the development programs all the time."

Boeing's chief rival, Airbus , recently blamed a combination of manufacturing and design flaws for wing cracks on its A380 superjumbo. The company said it had found a simple remedy for the problem, easing concerns among analysts who had feared the problem could dog the European planemaker.

(Reporting By Kyle Peterson; Additional reporting by Timothy Kelly; Editing by Lisa Von Ahn and Gunna Dickson)

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