Boeing's 787-9 Dreamliner Approved by U.S., European Regulators -- Update

By Dow Jones Business News, 
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By Jon Ostrower

Boeing Co. said U.S. and European regulators approved its larger 787 Dreamliner model for commercial service, a milestone for a plane that the company hopes will bolster the profitability of its flagship jetliner program.

The approval by the U.S. Federal Aviation Administration and the European Aviation Safety Agency clears the way for the first deliveries of the long-range jet, whose passenger cabin is 20 feet longer than the current Dreamliner and seats about 40 more passengers, with a total of around 290.

Boeing said on Monday that it is now in the final stages of preparing the first 787-9 for delivery to Air New Zealand Ltd., the jet's launch customer. The plane was originally due to be delivered to the Auckland-based carrier in 2010, but Boeing had to push back its development as it completed the first Dreamliner model, the 787-8, and significantly refined plans for the larger version.

The larger Dreamliner is designed to fly to destinations as far as 8,300 nautical miles away, or on routes as long as 15 hours to 16 hours. The jet is scheduled to make its commercial debut on Oct. 15, flying between Auckland and Perth, Australia, and later to Shanghai and Tokyo.

The 787-9's list price, now $249.5 million, has risen more than 40% since it was first disclosed in 2006, driven by increasing demand for the fuel-efficient jet and the steeper cost to build the Dreamliner. Airlines regularly negotiate discounts.

Boeing has delivered more than 150 Dreamliners since 2011. Analysts say it still costs the company tens of millions of dollars more to build each plane than they sell for. The company has been aggressively trying to reduce its costs with suppliers and make its factories more efficient to ensure its sale price exceeds its costs, which it forecasts will happen later this year. The Dreamliner program is profitable by Boeing's accounting standards, which allow it to spread its forecast costs over 1,300 deliveries, effectively booking future profit in today's earnings.

Dennis Muilenburg, Boeing's president, said recently the company had reduced its unit costs by about 30% over its first six 787-9 airplanes that came through its factories.

Boeing Chief Executive Jim McNerney in 2010 called switching customers to the larger Dreamliner "the single biggest opportunity" to bolster the program's profitability.

The larger 787-9 now accounts for 40% of Boeing's orders for the Dreamliner, with 413 reserved by airlines, many of which have been shifting to the larger model. The company launched a third, even-larger model, called the 787-10, last summer with seating for around 320 passengers. It is due in 2018.

The new 787, known as the 'Dash Nine,' completed its testing with little fanfare or drama, after Boeing reorganized its airplane development unit to avoid the delays suffered by the first Dreamliner, which was stalled 3 1/2 years by design and supply chain issues.

Rival Airbus Group NV is considering how to counter Boeing's 787-9. It is weighing putting new engines on its long- range A330 jetliner or proceeding with development of a smaller version of its A350, the first model of which is now in testing.

A Boeing spokeswoman said the new U.S. and European approvals cover only the 787-9s powered Rolls-Royce Holdings PLC engines. Similar clearance for planes with General Electric Co. engines awaits additional testing.

United Continental Holdings Inc. will be the first U.S. operator of the larger 787-9, taking the first of 26 it has ordered and is slated to begin service connecting Los Angeles and Melbourne, Australia, starting in late October. American Airlines Group Inc. has 30 on order as well. The Boeing spokeswoman added that the 787-9 has been granted similar approval as its smaller sibling that allow it to fly up to 330 minutes or 5 1/2 hours from a suitable diversion airport during long overwater or polar flights.

With its certification granted, Boeing hopes to avoid the public teething issues of the 787-8 that weighed on the jet's in-service reliability, frustrating customers. The Dreamliner was grounded for 3 1/2 months last year, following two incidents with the jet's lithium ion batteries. The aircraft was cleared to return to service after Boeing redesigned the battery and developed a containment-and-venting system to mitigate the risk of a fire. The 787-9 incorporates all of those changes and other improvements gleaned from the airline's operations with the smaller Dreamliner.

Write to Jon Ostrower at jon.ostrower@wsj.com

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