The late-2013 sales launch of Boeing's (NYSE: BA) 777X widebody jet was a game changer for the upper end of the commercial aircraft market. Thanks to folding wingtips and a pair of GE9X jet engines from General Electric (NYSE: GE) -- the largest ever created -- the massive 777X made four-engine jets obsolete virtually overnight. (This culminated in Airbus' decision earlier this year to start winding down production of its A380 jumbo jet.)
However, like many new aircraft models, the 777X is now running behind schedule. As a result, it's unlikely that Boeing will be able to hand over the first 777-9 next June as planned. That's unfortunate for Boeing and GE, because both companies are facing significant challenges right now.
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Boeing's 777X test program has been delayed
For the most part, the 777X was designed as a straightforward evolution of Boeing's current-generation 777 aircraft family. The biggest changes -- and thus the biggest risks to the 777X's development schedule -- were the new folding wingtips and the state-of-the-art GE9X engines.
Ultimately, the engines became the main cause of delays. During ground testing, GE discovered a relatively minor problem with the new engine's high-pressure compressor, which was designed to generate a record-setting 27:1 pressure ratio, boosting fuel efficiency. After that issue was resolved, GE ran into problems with the Boeing 747 jet that it uses to test new engines.
Boeing and General Electric have worked hard to mitigate the impact of engine certification delays on the 777X flight test program. Nevertheless, the 777-9 -- the first of two 777X variants to be produced -- still hasn't made its first flight, which had been set for "early 2019."
The first test flight was recently scheduled for June 26, according to launch customer Emirates. However, last week, Boeing revealed a new mechanical issue with the engine's high-pressure compressor. While Boeing and GE expect to have a fix ready soon, the first flight is likely to slip into July, if not later.
The 737 MAX grounding hasn't helped matters, either
Delays are common in the process of developing and certifying new jet models. Not only are they incredibly complex machines, but Boeing, Airbus, and their suppliers routinely push the boundaries of technology to maximize performance and fuel efficiency.
However, the 777X development and certification process also faces a more unique stumbling block: the grounding of the Boeing 737 MAX following two fatal crashes. First, Boeing has shifted engineering resources away from the 777X program in order to accelerate development of a fix for the 737 MAX's faulty MCAS software, according to Reuters.
Second, the 737 MAX catastrophe has led to sharp criticism of the FAA's certification process. Critics allege that the FAA delegated critical aspects of the safety assessment to Boeing rather than conducting an independent review. The FAA may feel pressure to subject the 777X to a far more comprehensive review, delaying the new model's certification.
An unfortunate setback
Boeing is supposed to deliver the first 777-9 to Emirates in June 2020, but that delivery date now seems highly unlikely. Flight tests were initially scheduled to occur over a 14-month period leading up to the first delivery. If anything, safety fears following the 737 MAX debacle will make the flight-testing process take even longer.
Boeing CEO Dennis Muilenburg recently stated that he still expects the 777X to enter service in 2020. However, even if that does happen, it will probably be much closer to year-end than initially planned -- and there's a real risk that the 777X won't be ready until 2021. Customers including Emirates and Lufthansa are already making contingency plans for delivery delays.
Delays to the program will be a nuisance for both Boeing and GE. After years of rapid cash flow growth, Boeing is facing major cash flow headwinds due to the pause in 737 MAX deliveries, airline demands for compensation, lawsuits by victims' families, and expected penalties from regulators. A later-than-expected 777X certification would further depress cash flow next year, as customers pay the bulk of the purchase price for new aircraft upon delivery.
As for GE, the industrial conglomerate has been relying heavily on its aviation business to offset losses and fund restructuring costs in its struggling power and finance units. Extra costs or lost revenue at GE Aviation would be the last thing General Electric needs right now.
The good news is that Boeing has the financial heft to absorb the hit from a delayed first delivery of the 777X. And if GE can quickly address the latest engine design issue, Boeing is likely to continue buying engines and building 777-9s according to its initial schedule so that it can catch up on deliveries in 2021. Thus, delays to the 777X program shouldn't cause permanent damage for either of the industrial giants.
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