By Bjorn Fehrm

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Introduction

31 March, 2016, ©. Leeham Co: Boeing will present its first quarter 2016 results in about three weeks. One area which will be carefully scrutinized by the aerospace analysts will be the progress of the 787 program towards making money instead of consuming it.

Boeing gives the detailed information about the health of the 787 program in the comments by Boeing’s CFO, Greg Smith during the quarterly conference call. In the last call, he puzzled the analysts (and us) by saying that the 787 program was cash positive in 4Q2015 yet the program increased its deferred production and tooling costs by $191m. This means it still pushed about $5m per aircraft into the balance sheet as production loss.

At the time we assumed that the 787-9 was cash positive whereas the 787-8 was negative. This was most probably correct but not the whole picture. With some further poking around we think we are the elusive loss making cash positive on its tracks.

It has to do with the peculiarities of program accounting.

Summary:

• It’s important for the 787 program to start amortizing the $32b in deferred production and tooling costs that has been amassed.
• The 787 production should be cash positive yet Boeing does not expect the deferred costs to be going down before 3Q
• We explain how something can be cash positive yet still defer costs. The answer is to find in how program accounting defines what is the cost of goods sold.