Why Boeing won’t take a charge on 787s

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Boeing 787-9. Source: Boeing.

April 11, 2016, © Leeham Co.: Boeing has $29bn in deferred production costs and another $3bn in deferred tooling costs for its 787. The accounting block, for its program accounting, is a record 1,300 aircraft. Many Wall Street analysts are skeptical whether Boeing will ever recover the huge deferred numbers. Boeing insists it will. Still, taking a charge of some number—as it has done twice for the 747-8 and twice for the 767-based KC-46A—is something Boeing repeatedly insists it doesn’t need to do. Why not? There are a few key reasons, say Wall Street analysts who follow Boeing: revenue, cash flow and the stock price. Summary
  • Bank of America Merrill Lynch estimates Boeing needs to post a profit of $30m on each of the remaining 900 787s to be delivered to recover the deferred costs. LNC figures this number is higher.
  • Pricing pressure from Airbus makes it difficult to obtain this profit.
  • The deferred costs limit Boeing’s ability to price down to meet Airbus’ offers to customers.
  • Credit Suisse figures Boeing can recover only some $22bn of $29bn in deferred production costs.
  • Boeing warns in SEC filings a forward loss might be required.
  • But no forward loss is likely unless revenue falls short.

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