Boeing Works Around Japan Earthquake-Related Supply Disruptions

   By Christopher Hinton 
 

Boeing Co. (BA) said Wednesday that some of its second-tier suppliers in Japan were disrupted by the country's recent earthquake, but alternative sources have been filling in and so far there has been no impact to the aircraft builder's production rate.

"Our major structural partners are well outside of the region where the bulk of the damage occurred," said Boeing Chief Financial Officer James Bell, during a J.P. Morgan Aviation, Transportation & Defense Conference.

Major components for the Boeing 777 and 787 jetliners are built in Japan by Mitsubishi Heavy Industries Ltd. (7011.TO), Kawasaki Heavy Industries Ltd. (7012.TO) and Fuji Heavy Industries Ltd. (7270.TO), in facilities around Nagoya, far south of the earthquake's epicenter.

Shares of Boeing were recently up 1.4% at $72.86. The stock lost more than 3% last week after Japan's earthquake and tsunami threatened to disrupt the country's industrial output.

Disruptions in the 787 supply chain have led a near three-year delay to the next-generation jetliner, a twin-aisle aircraft built of lighter, carbon-composite material to reduce fuel consumption. The aircraft is currently being certified and is scheduled for its first delivery in the third quarter.

Boeing has said it made mistakes in its 787 supply chain by relying too heavily on the engineering of others to spread the development and risk for the new aircraft.

However, Bell said Boeing would nonetheless adopt the same strategy for its popular 737 if it decides to re-design the popular single-aisle jetliner, with modifications, because it helps to lower costs as well as open foreign markets.

Meanwhile, Bell predicted improving cash flow throughout this year, culminating in a possible dividend increase next year, along with a possible stock-buyback program and paying off more debt.

The company, he said, may also consider "appropriate opportunities" for acquisitions.

-By Christopher Hinton; 415-439-6400; [e-mail]