Boeing's 'Terrible Teens' Cut Into Profit, Tax Revenue

Feb 20, 2014

Stan Sorscher of SPEEA observing the undelivered Boeing 787s at Paine Field.
Stan Sorscher of SPEEA observing the undelivered Boeing 787s at Paine Field.
Credit KUOW Photo/Carolyn Adolph

Boeing says it will have to wait until sometime in 2016 to turn a profit on the 787 Dreamliners line.

By that time, the aerospace says developing the game-changing plane will cost the company more than $25 billion. There was a time when Boeing thought it would take $5 billion to develop the new plane.

The planes cost more to build than to buy, and the company is missing out on revenue on the planes in other ways too.

Paine Field, runway 11-29, seen from space
Paine Field, runway 11-29, seen from space
Credit Google Maps: undated

The Terrible Teens

Ten years after Washington state passed the incentives package that brought 787 production to Washington, an important legacy of the plane’s tortured development remains at Paine Field in Everett: runway 11-29.

The runway is now a parking lot for 787 skeletons. Their hatches are tarped over, their windows taped up. They are bodies of planes without engines. Insiders call them the “Terrible Teens.”

“These airplanes have been there for three years. Four years. You know: 1,300 days,” said Scott Sorscher, a former Boeing physicist and an employee of the engineers union SPEEA. “They’ve been here a long time. Nothing’s going on. Parts are missing.”

Boeing says these planes need important changes before they can fly. But they’re not being fixed or scrapped. The unofficial story is that they’re money pits.

Flying A Program Into The Red

Building the Terrible Teens cost a lot more than Dreamliners sell for today. Based off of the tax write-offs for the first three 787s, observers think the planes cost around $400 million apiece. The cost is so high because Boeing was still early in its production learning curve at the time the planes were manufactured.

Today, Dreamliners list for about a quarter of that. And because these 787s haven’t been delivered, Boeing’s not getting paid anything for them now. These planes are part of the reason why the Dreamliner program is $25 billion in the red.

On its books, Boeing is deferring these costs. But financial analysts have been noticing. In a recent conference call, one analyst – Peter Arment with Sterne, Agee & Leech – asked specifically about the Terrible Teens. Another expressed disappointment that the undelivered planes still hadn’t been dealt with.

Boeing says this won’t be the year these planes will move off runway 11-29.

Boeing says its priority is turning a profit on new production, not fixing up the early planes. So the company will concentrate on improving the work flow on the 787 production lines.

Boeing says planes being produced now are all fine: They’re built, painted, tested, flown and delivered.

However, the company also says there are more 787s than just the Terrible Teens waiting to be fixed, but Boeing won’t say how many.

A Boeing 787 Dreamliner in flight.
A Boeing 787 Dreamliner in flight.
Credit From Wikipedia

Missing Tax Revenue

When Boeing does fix its 787s, they’re sent to the Everett Modification Center. Three 787s are parked around it now. Sorscher pointed out a 787 painted for All Nippon Airlines and said that’s a customer who’s waiting.

“You have inventory tied up but you have a customer who’s waiting for an airplane that could have been delivered," he said. "The airline could have been making money and carrying passengers from one city to another.”

Boeing’s engineers have long been critical of the 787 program. But the plane remains a game-changer, a fuel-efficient wide-body with an order book now 900 planes deep.

Washington state made a deal to get the 787 production lines. Back in 2003, the state agreed to give up a percentage of aerospace tax revenues in the hope that airplane deliveries would bring even more. But about a third of the expected tax revenues didn’t come in, in part because of the ghosts on runway 11-29.