Boeing Revs Up Production Rate Of 787s With Third Assembly Line

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Boeing ( BA ) has started a third assembly line for the 787 Dreamliner to increase the production rate under the program, which is running well behind its original delivery schedule. The current firm orders for 787 exceed 800 while the cumulative 787 deliveries stood at a mere 14 at the end of the quarter ending June 30, 2012. The delay in deliveries has also hit the company's margins as it has been forced to pay delay compensations to its clients. Thus, the new assembly line will not only increase deliveries of 787, adding to growth in top-line over the coming quarters, but also reduce the impact on margins through lower delay compensations.

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The third assembly line will help increase production rate

This third assembly line for the 787 is located at Boeing's main jet plant facility at Everett, Washington, adding to an already existing  787 assembly line at the same facility and another one at North Charleston, South Carolina, which rolled out its first plane in April earlier this year. The current production rate from the two operational lines stands at 3.5 planes per month and, with production starting on the third line, the company aims to increase this to 5 planes per month by the end of this year. Boeing finally aims to take the rate of production for 787 to 10 planes per month by the end of 2013.

The step was a much needed one

The additions of an assembly line to the 787 program was a much-needed step, as the number of unfulfilled 787 orders are exceeding 800 at present, while cumulative deliveries under the program stood at a low of 14 at the end of last quarter. The delivery schedule under the program is running much behind its original plan, as the first 787 entered service in September last year, nearly three years after its original schedule. These delays in delivery have forced the company to pay compensation to its customers who are receiving orders post their original delivery dates. For example, Air India recently accepted compensation offered by Boeing on the delay in delivery of 787, and the Sydney-based Qantas Airways announced last week that it is to receive $433 million in delay compensation and deposit return from Boeing after the former cancelled an order of 35 787s. Thus, these delay compensations are impacting the overall margins of the company.

However, as the rate of production rises with the third assembly line, the higher number of 787 deliveries over the coming quarters will not only add to the company's top-line growth but also reduce the impact on its margins by saving on delay compensations.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BA , GE , LMT , NOC , UTX

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