Boeing risks $5 billion in revenue on 787 Dreamliner investigation outcome

DALLAS: As government regulators investigate Boeing's 787 Dreamliner and company engineers search for solutions, investors and analysts are grappling with the bottom-line question: How much will the plane's grounding cost? The answer depends on what probes in the US 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 CEO Jim McNerney has to write off about $5 billion in anticipated revenue, said Howard Rubel, a Jefferies & Co analyst. 

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, afund 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 batteries on a Japan Airlines 787 in Boston and a fault that forced an All Nippon Airways plane to make an emergency landing in Japan on January 16. The jet debuted commercially in 2011, and 50 have been delivered so far. 

FAA probe 

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 Bernstein & Co analyst in New York, estimated Boeing's expense at less than $350 million. With probes still under way 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." 

Sales estimate 

Earnings per share may rise more than 50% to $7.69 by 2015 from $5 in 2012, the average estimate of four analysts surveyed by Bloomberg. 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% production boost in the four years through 2014 to meet demand from airlines for more fuelefficient planes.