Boeing’s announcement of delays in the production of the 787 Dreamliner and the 747-8 gives rise to legal and financial implications for many airlines and financiers

16 March 2009

Anders Nilsson

At the end of 2008, Boeing announced that the production of Boeing’s new mid-size aircraft, 787 Dreamliner, and the upgraded version of the 747, the 747-8 (passenger and cargo version) were subject to delays that will significantly affect the delivery dates of the aircraft. Boeing has alleged that the delays have arisen due to different manufacturing issues pertaining to the production of the 787 and most importantly, the recent Boeing machinist strike, which involved approximately 27,000 employees and lasted for eight weeks.

For strategic reasons Boeing has emphasised the detrimental consequences of the machinist strike and that a significant part of the announced delays in the delivery of the said aircraft is attributable to the strike. Since a strike is normally considered as a force majeure event under the aircraft purchase agreements concerned, it will therefore constitute an excusable delay. The customers concerned will naturally take the standpoint that the actual causes of the delays are within Boeing’s control, such as the unresolved manufacturing issues of the 787, such circumstances normally falling well outside the definition of an excusable delay. Purchase agreements not containing liquidated damages clauses in cases of non-excusable delays may become subject to long-drawn disputes between the customers and Boeing on how to establish the actual damages incurred by the customers due to the delay.

As a consequence of the delay of this magnitude, the schedules for the pre-delivery payments (PDPs) related to the delayed aircraft will be affected and may need to be subject to renegotiations and adjustment. Customers are likely to apply pressure on Boeing for various kinds of compensation, such as payment of interest or other compensation for the PDPs already paid. Customers may also face situations where the entire financing structure for the forthcoming PDPs as well as the delivery financing structure needs to be renegotiated. In addition customers concerned may already have entered into agreements and arrangements for their current fleets. Thus the delay will inevitably give rise to legal controversies and/or disputes under a number of arrangements, expanding the circle of affected parties even further.



Anders Nilsson

Managing Partner
United Arab Emirates

Call me on: +971 26108 100