By Alwyn Scott
NEW YORK (Reuters) - Just over a month ago, Boeing was flying high.
Its airplane factories were humming and speeding up production. Its defense business had just been restructured to deal with dwindling budgets in the United States and Europe. The company was confident enough to increase its dividend and resume buying back shares.
Perhaps best of all, Boeing was shortly to reclaim the title of world's biggest plane maker, snatching back an honor that its arch rival Airbus had held for a decade.
But with its new 787 Dreamliner still grounded by two battery failures on the eve of its 2012 earnings release, the Chicago-based aerospace and defense giant is in no position to rest on laurels.
Analysts and investors are likely to grill Chief Executive Jim McNerney about the costs of fixing the 787 when the company reports earnings on Wednesday.
Those costs are unknown but mounting daily as airlines are barred from using the high-tech plane. Boeing is still building five Dreamliners a month but isn't delivering them to customers. With each of them carrying a list price of $207 million, they quickly become an expensive pile of jets outside Boeing's factories in Everett, Washington and North Charleston, South Carolina.
That is why Wall Street is looking for guidance from McNerney about how painful the grounding is getting.
"For now, we know there have been costs," said Howard Rubel, an analyst at Jefferies Group. "While the cause of the event is still not clear, a host of possible items have been eliminated." Those include excessive voltage reaching the batter and obvious anomalies in the battery construction.
A one-month delay in 787 deliveries could cost $1.2 billion in revenue this year, said Zafar Khan, an analyst at Society Generale. He has a "sell" rating on the stock.
Analysts say that most of Boeing's businesses remain unaffected by the 787 problems. It is still producing huge numbers of planes, will enjoy strong cash flow this year as it delivers those jets, and has orders to last another seven years at current production rates.
But a strike by Boeing's engineers' union - the Society of Professional Engineering Employees in Aerospace (SPEEA) - remains a risk in February and could halt the company's FAA review since engineers are crucial to understanding the plane's intricacies.
A strike by engineers also could severely slow or halt deliveries. During a 40-day SPEEA strike in 2000, the company delivered just 19 planes.
Contract talks now hinge on Boeing's efforts to eliminate a defined benefit pension plan for new hires, an attempt to reduce pension expense that Boeing said would reach $2.5 billion in 2012 and that analysts' estimate will total $1.8 billion in 2013.
The pension cost is affected by interest rate assumptions and market dynamics, things Boeing can't control. So some on Wall Street focus on the company's operating earnings, which largely factor out pension costs.
Analysts have trimming their estimates for Boeing's fourth-quarter earnings to $1.19 a share on revenue of $22.35 billion, according to Thomson Reuters I/B/E/S. Perhaps more telling: some analysts say their estimates for 2013 have dimmed and at least three have cut their ratings on the stock; the shares have lagged broader indexes this year.
On the upside, Boeing is targeting more defense sales to Asia, as other defense companies are doing, to stabilize the 40 percent of revenue coming from that side of the company and stave off the effects of U.S. budget sequestration.
"We expect flat-to-declining revenues" for Boeing's defense and space business in the medium term, Khan at Society Generale wrote in a note to clients.
Some analysts say the 787 problems appear to be relatively easy to fix, perhaps by swapping in a different battery type.
But even so, Boeing still faces a longer-term review of its design, manufacturing and assembly processes by the Federal Aviation Administration.
The FAA has not set a time frame for its wide-ranging investigation, which is aimed at dealing with an assortment of problems with the new jet. An electrical fault caused an emergency landing by a United Airlines
A few weeks later, a 787 in Boston spilled about 40 gallons of fuel on the tarmac as it taxied for take-off. Then a plane in Japan had fuel leaks. Another had brake problems and a third had a cracked cockpit windscreen.
Such events are usually considered ordinary, but coming in quick succession, they cast a pall over the Dreamliner.
(Reporting by Alwyn Scott; Editing by Ed Tobin and Steve Orlofsky.)