Undelivered Dreamliner jets strain Boeing's finances as Covid-19 hits demand

Boeing is running out of space to store its newly built 787 Dreamliners, with the jets seemingly occupying every available patch of pavement on airfields near its factories in Washington and South Carolina.

Dozens of the planes currently sit on the company’s premises. Uresh Sheth, a blogger who tracks the Dreamliners as they are produced in Boeing’s factories, puts the total somewhere above 50. That is more than double the number of aircraft typically awaiting customers along Boeing’s flight lines.

Brand-new wide-body jets are lined up on a closed off runway at the airport near Boeing’s plant north of Seattle.

In North Charleston, 787s are parked around the delivery centre and a paint hangar.

The US plane manufacturer has begun sending aircraft to be stored in a desert lot in Victorville, California, according to Mr Sheth.

After last year’s global grounding of 737 Max jets, the company had so many of them on hand that it commandeered an employee car park to store surplus aircraft. Now, as it begins to emerge from that crisis, another critical source of cash – the marquee 787 – is under pressure.

Boeing had relied on the wide-body jet, produced in record numbers, to help bankroll the $20 billion (Dh73.4bn) in costs incurred since the Max was banned from commercial flight in March 2019 after two fatal crashes.

But as Covid-19 sapped consumer interest in long-range travel this year, the tally of undelivered Dreamliners stacked up, creating a new financial drag as regulators move closer to clearing the 737’s return.

“The next couple of years are just going to be very hard for this aircraft,” George Ferguson, an analyst with Bloomberg Intelligence, said of the 787 Dreamliner.

Demand for the twin-aisle 787, Boeing’s 777 and Airbus’s A350 and A330neo has been especially hard hit as cash-strapped airlines slow or cancel aircraft purchases.

Some would-be buyers do not want to send pilots to claim aircraft in the US, where the pandemic is raging.

When they are able to start growing fleets, airlines are expected to initially focus on smaller planes for domestic flights before adding larger aircraft for continent-hopping trips.

Boeing also faces a “capacity hangover” after pushing Dreamliner production to a 14-jet monthly pace last year – a record for wide-body planes – in a market that was already oversupplied with aircraft, said Richard Aboulafia, an analyst with Teal Group.

“It was one of the few levers they could pull to bring in more cash during what seemed like a crisis, and now looks like a nothingburger,” Mr Aboulafia said of Boeing’s response to the Max's grounding.

That scandal has been eclipsed by the aviation crisis brought on by Covid-19.

“No twin-aisle had ever been built at 14-a-month for a very good reason,” he said.

Boeing declined to comment specifically on the number of 787s in its stock or production plans, citing a quiet period.

“We continue to closely monitor the commercial marketplace by staying very engaged with our customers around the globe to fully understand short-term and long-term requirements,” Greg Smith, the company’s chief financial officer and executive vice president of enterprise operations, said.

Customers took just three of Boeing’s 787s during May and June, and 36 of the aircraft in the first six months of the year. That is down from 78 deliveries a year ago.

Boeing has already reduced 787 production to 10 jets a month, with deeper cuts expected in the next two years. Still, the manufacturer could be left holding one third of the more than 100 Dreamliners that JP Morgan analyst Seth Seifman projects the company will build this year.

“It may be difficult to clear this inventory next year”, given that Boeing would have to increase deliveries at a time when “when long-range travel may still be under pressure”, Mr Seifman said in a July 15 report.

The ballooning 787 stock levels and deferred production costs should come into sharper focus in the next two weeks as significant customers such as American Airlines Group and United Airlines Holdings report financial results, followed by Boeing on July 29.

For years after the 787 Dreamliner made its commercial debut in 2011, taped up aircraft awaiting retrofitted parts dotted Paine Field, adjacent to Boeing’s factory in Everett, Washington. For Mr Sheth, there is a sense of deja vu to the growing glut.

“I have no doubt they are going to recover from that downturn,” Mr Sheth said. “But at this point they are probably going to have to cut production even lower because they can’t continue on this trajectory.”