The Indian government claims that Boeing (NYSE: BA) owes it $500 million for the late delivery of planes. The aircraft in question is the Boeing 787 Dreamliner, which was delayed at least five times for a total of four years. The claim might even have been higher — and still may be. The Financial Times reports that “Air India had been seeking at least $1bn compensation after placing an order for 27 of the 787 aircraft in 2005, worth $5.2bn at list prices.” Boeing, and its competitor Airbus, had hoped to dodge claims through reduction of prices on future aircraft delivery or clever negotiation. Now, each will pay billions of dollars in penalties, due largely to management ineptitude and poor manufacturing processes.

Boeing’s delays are part of a series of problems. Much of its fleet of 737s had to be inspected for weaknesses in infrastructure. The 787 finally has been released, but it has trouble with structural problems in the tails of the planes. The problems are worse at Airbus, for the time being. Its new super jumbo A380 has shown cracks in its wings. The entire fleet will undergo inspection.

Production delays and manufacturing weaknesses ultimately must be blamed on senior management at the two companies. They set manufacturing cycles and safety test programs. Boeing and Airbus are among the world’s largest manufacturers. Each has the financial and expertise capacity to release products on time, or nearly on time, without major flaws. Ultimately, the aircraft were released too quickly due to profit concerns. Several more rounds of tests or delayed production to ensure safety would have resulted in billions of dollars in additional costs and delayed deliveries.

Each of the companies will face several billions of dollars in unforeseen expenses. These costs will not be because the planes were released late due to safety concerns. They will be because the planes were rushed to market too early.

Douglas A. McIntyre

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