Monday, December 14, 2009

Boeing -- Will Test Flight Change Guidance?

Boeing (BA) will soon conduct the defining test flight for its 787 Dreamliner. Of course it will fly and the publicity pictures will be spectacular. We think it might be on Tuesday Dec 15, 2009.

But let us read between the lines. In previous earnings releases they said they would adjust earnings guidance based on test flight results. The initial corporate reaction if they remember to talk about earnings will be “we are analyzing results”. The test flight will provide a huge amount of technical data. The product line financial model is based on computer simulations. This will be the first taste of reality and the model will most certainly need to be adjusted.

The question becomes are they just tweaks or will there be major changes. The project has a history of difficulty. Design changes have been made. Boeing has allowed its third party system to take the blame. Now it’s on Boeing’s shoulders. So when we look at guidance and earnings releases watch for the design comment wiggle and see how confident management really is.

Just for fun I am reprinting the definition of test flight that Wikipedia has

“Flight test is a branch of aeronautical engineering that develops and gathers data during flight of an aircraft and then analyses the data to evaluate the flight characteristics of the aircraft and validate its design, including safety aspects.

The flight test phase accomplishes two major tasks:

1) finding and fixing any aircraft design problems and then
2) verifying and documenting the aircraft capabilities for government certification or customer acceptance.

The flight test phase can range from the test of a single new system for an existing aircraft to the complete development and certification of a new aircraft. Therefore the duration of a flight test program can vary from a few weeks to several years.”