FCF: The Double-Edged Sword (an accounting primer)

By the Leeham News Team


Jan. 30, 2024, © Leeham News: Boeing reports its year-end 2023 earnings tomorrow. Historically, Free Cash Flow (FCF) is a key metric officers like to promote, and aerospace analysts focus on.

Before the 2019 grounding of the 737 MAX, Boeing returned 100% of FCF to shareholders via stock buybacks and dividends. Both returns were suspended by the end of 2019. Boeing set a goal in November 2022 of $10bn in FCF by 2025/2026, with the implication that shareholders will begin seeing a return then.

Free Cash Flow is generally understood to be the cash that flows into a company, less the cash outflows to pay for Operations and Capital Expenditures (Capex). It is the money that the company has available to repay its creditors or pay dividends and repurchase stock. It is also used to determine the financial health of an entity.

In the financial community, they are the buzzwords that investors love to hear.

Why is this relevant, especially for Boeing?

FCF Outlook

With 2023 in the books, Boeing has already projected FCF to be in the neighbourhood of $5bn to $6bn. Surely this is good news, correct?

As in almost everything in life, the devil is in the details. A deeper dive is required to understand where this money comes from and why it should be taken with a grain of salt.

For the nine months ended Sept. 30, 2023, the largest amount on the BA Consolidated Statements of Cash Flows was Advances and progress billings: $2.963bn. The official accounting term for advances and progress billings is Unearned Revenue, which sits in the Liability section of the Balance Sheet. Monies that the company cannot yet claim as theirs.

Boeing generates a considerable amount of FCF from deposits.

When airlines place orders for aircraft they generally secure an order with a deposit, then make pre-delivery payments, along the way. Boeing has almost $56bn accumulated in unearned revenue.

With the bumper crop of orders recently made, especially at the most recent air show, FCF will undoubtedly go up.

So, this is good news, isn’t it?

Detailing the Devil

The amounts received from airlines must be returned to them in the form of a product – aircraft. If an OEM delivers an aircraft (or a series of aircraft to a group of airlines during a specific time period – like a quarter or a year) and does so with positive margins, then it is a win. Revenues exceed expenses and the OEM gets to keep the difference.

The flip side is that when margins are negative, it has cost the OEM more money to produce the aircraft then it has taken in.

Year BCA Revenues

($ Billions)


($ Billions)



2023 23,420 -1,676 -7.2
2022 25,867 -2,370 -9.2
2021 19,493 -6,475 -33.2
2020 16,162 -13,847 -85.7
2019 32,255 -6,657 -20.6


(2023 results until the end of Q3)

For the four years and nine months ended Q3/2023, BCA has reported over $117bn in revenues and it has cost them over $31bn in losses.

If we estimate that deposits and PDPs accounted for about one-third of revenues or about $40bn rounded and it generated ~$10bn in losses, one can say that Boeing held $40bn in funds from airlines and it cost them $10bn in borrowing costs to do so.

Free Cash Flow is not always the panacea it is made out to be and while the accounting minutia might be tedious, everyone should be aware of the fine print.

111 Comments on “FCF: The Double-Edged Sword (an accounting primer)

  1. Most contract has price escalation formulas as time passes parts, raw materials and labour cost can increase in addition to other escalation formulas so the price increase normally up to promised delivery date of a certain line number. Hence can you delay delivery per contract the more money you have a chance to get thru all escalation formulas.

    • “… price escalation formulas …”

      You think those also touch on compensation for incompetence?

      ( factual is the reverse : extra outlay to compensate for incompetence )

      nice idea : “compensatory gains”
      lots of money in that?
      lots of outlay in pacifying customers for the delays.
      ShF: when the customer reneges and changes supplier.

      • It is quite common in industry for long lead products with delivery in the future as the contract includes price “adjustments” for raw and finished material costs, inflation and hard to predict cost increases in the future that the producer has little effect on. There are different government derived price escalation formulas even in the construction business used for multi-year projects.

        • to get it across:

          there is no compensation clause for cost incurred by incompetence!

          • Just enough people can be incompetent/focus on money only to make the organisation go off course

  2. Very illuminating analysis.
    It’s safe to say that share buybacks shouldn’t be on Boeing’s horizon for the immediate to medium term future.
    But I’m sure the BoD will somehow manage to spend money they essentially don’t have to prop up the stock.
    And Wall Street seems to think so too.

  3. Beware of financial engineering & mystifying wording / deliberate complexity.

    As long as you are 50B in debt and there’s a credibility escape, there’s no real FCF.

    FCF should invested with recovery & long term health in mind, not short term greedy. That caused way too much damage in the previous 10 years.


    Boeing has to be careful, credibility is on the line. Also on how they handle, or even mention FCF.

    ATM the investors are no longer the main stake holders.. Customers, Government, Unions, DoD and FAA are watching closely.

      • I go with Vincent and the comment that says it all.

        They have been slowly liquidating the company.

        We can talk all the financial stuff we want and call it pillaging, but that statement above is the perfect way of saying it.

        Thank you for finding that Vincent.

  4. While I don’t think you meant to convey it –the recognized cash associated with Advances and Progress Billings is not alchemy. It is typically correlated to build progress/cost activity – to recognize cash-in (revenue) in line with cash out (build expenses) for an aircraft – vs. regulay expenses followed by a giant revenue bubble at delivery. These items and policies, for companies such as Boeing, are in the cross-hairs of the external auditors for annual testing and signoff.

    So, while we can debate whether Boeing should change its philosophy around dividends and buybacks –we should not automatically suspect that Boeing is using anything other than solid/normal industry accounting practices. Again, that was NOT your suggestion – but worth clarifying.

    • I think the suggestion is the revenue and expenditure stages aren’t well aligned. In years where Boeing has a lot more orders than deliveries, it gets a boost to revenue through deposits, which isn’t offset by expenditure on the specific planes. But at some point it will have to build and deliver the planes, which it is currently doing at a loss. The FCF position claimed by Boeing will turn negative unless some other factor kicks in.

      • When combined with program accounting, it offers all of the ingredients for a pyramid scheme that will eventually collapse like a house of cards.

    • @Subdude

      ‘It is typically correlated to build progress/cost activity – to recognize cash-in (revenue) in line with cash out (build expenses) for an aircraft – vs. regulay expenses followed by a giant revenue bubble at delivery. ‘


      Boeing uses Program Accounting. It is detailed here, right in their financials:


      Program Accounting

      “Program accounting requires the demonstrated ability to reliably estimate revenues, costs and gross profit margin for the defined program accounting quantity. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, longterm production effort for delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates.”

      Emphasis on ESTIMATES.


      ‘we should not automatically suspect that Boeing is using anything other than solid/normal industry accounting practices. ‘

      Boeing is the only one, IIRC – that uses program accounting. Airbus uses percentage of completion. Which is why BA came out and produced this webpage:


      Commercial Airplanes Unit Cost vs. Program
      Segment Information – Earnings from Operations
      Boeing Commercial Airplanes

      2023 1Q23 2Q23 3Q23
      Commercial Airplanes – Program Accounting (615) (383) (678)
      Commercial Airplanes – Unit Cost Accounting * (1,871) (919) (1,148)


      So what you have, in the above table provided by Boeing, is what they recorded as Earnings (for each quarter) under program accounting – in this case a loss, and what it actually would have been, if it was done under Unit Cost Accounting.

      In Q3, BCA took a loss of $678 million, using Program Accounting.

      Had they used Unit Cost Accounting, it would have been $1.148 billion.

      They kicked the can down the road, piling up expenses in the Deferred Production Balance which is squirreled away in Inventory, to be expensed in the future.


      Here’s a case study on Program Accounting from the CPA Journal, if you’re having trouble sleeping at night:


      “Program accounting is a modified version of percentage of completion contract accounting. The primary difference between contract accounting and program accounting is that program accounting estimates the number of units of a given model that will be sold over its lifetime and estimates the total costs the company will incur to build that number of units in the program, whereas contract accounting bases its estimated costs on the cost to complete a specific contract (ASC 912-20-25-5A). A secondary difference is that program accounting recognizes revenues when the customer takes delivery of the product, while contract accounting recognizes revenues based on estimates of the percentage of the costs that have been incurred to complete the contract (ASC 912-20-25-5A).”


      From Harvard:

      “Unlike its rival Airbus, Boeing had used a practice called program accounting to record its commercial aircraft expenses since the 1980s. Program accounting allowed Boeing to expense estimated average costs instead of the actual production costs of an aircraft. This practice lowered the effect of the initially high costs of manufacturing new aircraft models on Boeing’s profitability and reflected potential learning efficiencies that could drive down manufacturing costs over time. By 2016, Boeing had deferred about $27 billion in production costs related to its 787 program. If Boeing had been forced to expense these costs, it would have shown profits of $1.4 billion between 2012 and 2016 instead of $25.2 billion, raising questions about Boeing’s true profitability.”

      • Airbus DOES use program accounting – for launch orders which could be as much as 100 plus planes. Except it calls it ‘contract accounting’

        Its never clear when it is or isnt still using program accounting as it doesnt separate out each of its ‘programs’ ie A320 , A321, A220, A350 etc in terms of revenue and cost of sales.
        Eg How many A321XLR are booked under contract accounting ?

        Boeing of course uses program accounting as its principle method PLUS unit accounting final numbers are produced at EOY statements. Each aircraft program has its numbers separated out as well.

        Far more transparent than that company with its financial HQ in Leiden Netherlands
        Airbus SE
        PO Box 32008
        2303 DA Leiden The Netherlands

        • as always: you are up the wrong alley.

          step back!

          quality is not everything.
          As Stalin put it: quantitiy is a value of its own.

          to wit:
          programme accounting ( under GAAP rules ) is acceptable when you can show that your estimates on cost and revenue are correct.

          thing falls on its face when you screw the pooch on the cost side. ( 787 incurred cost about 5 times the estimate cost when the programm acounting scheme for this project started.)

          • And who enforces the rule of accounting law?

            Clearly no one.

            And quantity only has a quality if it overcomes what is there and Boeing no longer even has quantity.

            The ME-262 was not going to win the war.

          • https://leehamnews.com/2015/09/11/bjorns-corner-production-costs/
            “This is the way that Airbus handled production costs until the A380 and A350 projects. For these two projects, select early customer orders are handled like Boeing’s program accounting (see below), but only for the aircraft inside the customer order. For all other orders, the actual production cost is expensed in the quarter.”

            ‘From an observer’s point of view, it is difficult to know how much the different aircraft programs have cost the company. Airbus shows its revenues and costs on a division level but not on a program level. It is therefore not possible to know how much the first A350s cost Airbus to produce; it is hidden together with the margins that Airbus makes on other programs like the A320 and A330.”

            “The key take-away is not the figures but that fact that Program Accounting gives the external person a chance to understand the true production costs of an aircraft whereas unit accounting doesn’t.

          • “The key take-away is not the figures but that fact that Program Accounting gives the external person a chance to understand the true production costs of an aircraft whereas unit accounting doesn’t.”

            “programme accounting actually is a boon”
            who would have thunk! and from you at that!

            Amusing and nothing more than a distraction
            as long as the “Deferred Basket” is ignored by analysts,
            waxing lyrical on FCF and other nonconclusive metrics.

            Note that it took the shareholder universe 2+ decades to note that Boeing had developed degressive systemic illness.

  5. How a company with $50 billion in debt that is in a capital and research intensive business can think it is appropriate to distribute 100% of free cashflow to shareholder and still remain competitive in the long term is a bit of a puzzle to me.

    I’d like to know whether any analysts ask that question and how Boeing addresses it.

    • If is a bit like a nation and political parties that want to slash costs and make huge tax reductions. Roads, bridges, train tracks (for government run system), water and waste water systems, the power grid, defence, airports, prisons… you need to invest constantly otherwise it is so run down you need to rebuild it all at x 5 the cost when the party is over and your kids need to pay up.

    • They are not competitive. Boeing is failing miserably.

      They are loosing to Airbus.

      The best term I have seen is They Are Slowly Liquidating the Company.

      No new product and you can begin to see the end of the road.

    • for a new clean sheet commercial aircraft to replace the 737…..Boeing (not including first tier supplier “partners”) will be investing $30 billion (real cash) for the launch (e.g. 80 a month rate) One needs to “assume” the wings and fuselage will not be current composites technology requiring autoclaves ($$$ for capital equipment and space) and need new out of autoclave technology (design and mfg.) All new first and second tier suppliers for AM parts. To add to the complexity, the last new clean sheet launch was in 2004 with 7E7…by the time Boeing does launch….it will be 30 years and they have lost most of their institutional tribal knowledge for engineering

      • One has to wonder if Airbus had not introduced the A320, would Boeing be still building classics…
        If Airbus had not introduced the A320 NEO, would Boeing still be building the NG…

        • Jurassics pimped.

          and they would conform to cert requirements as
          the changes towards higher requirements just before the certification and EIS of the A320 would not have happened 🙂

        • Yes, this is how the free market works. You cannot build Chevy Caprice forever when there is competition in a free market economy. Weak products are supposed to fail and new ones take its place.

      • ” ( $$$ for capital equipment and space ) ”

        avoiding up front investment is MBA bullshit.

        especially with high build rates excellently designed tooling
        is essential. ( look at the auto industry: tooling and factory design/construction is a significant investment for high quality output and
        is a significant position in cost per car. )

  6. Before I joined Boeing to do what was essentially infrastructure R&D, I was an accountant with a CPA certificate, but no license. I had not quite completed the supervised audit work requirement. Booth Gardner got the rules tweaked a bit when he was governor that created an opportunity. Boeing corporate finance setup a program such that anyone who worked for the company who fit this really narrow set of circumstances, could, with approval from their home organization, be lent into finance and do a bunch of internal audit work and get their licenses. Three of us did that.

    So there is another aspect of the billions in losses but adequate free cash flow situation that I have not seen written up in the press yes. That’s the decapitalization. It’s not just new debt that has been providing that FCF. It’s the shrinking of the company’s size, which is now maybe about half of what it was prior to the beginning of the decapitalization program (some prefer to call it the harvesting of the company).

    If you tally up the sites that have been sold off, and consider that the activities that were once at those sites simply no longer exist within the company, it’s quite the amazing list. I’m sure I couldn’t list them all, but just to start, some of the perpiheral sites at Everett, about half of Renton, Longacres, almost all of Bellevue, a good part of Auburn, more than half of the Kent Space Center, the old BECO campus in Auburn, Wichita commercial, Wichita defense, both production sites at Long Beach, at Plant II the land is now a parking lot but still Boeing, then there’s the massive reduction in the company’s presence at customer sites, such as Vandenberg, Palmdale, OKC, dozens of leased sites … it goes on.

    To put it bluntly, the company has been in the process of being liquidated to support this nonsense.

      • Brian:

        We have known that for a long long time.

        What no one has been able to do is get it corrected, but per the Slow Liquidation, they are all in on it, Board, CEO and all the uppers

        As long as they get out of Dodge before the collapse, they are good with that. Ugly and sad truth.

    • So let me explain a little bit more about program accounting and the theory behind it. But first, let me point out a major difference between American and international accounting standards. Our accounting, like our legal system, is rules based. Yes we have accounting principles, but those guide rule making. If you report by the rules, you are ok, even if it ends up violating a principle. In my opinion, this is one of the major root causes of many of our accounting and legal problems today. This difference has its roots in the American Revolution.

      The Declaration of Independence and the Preamble of the Constitution set out some fine aspirations and principles, but we only very rarely let those trump our rules. The Europeans have a very different approach in most cases, including in their approach to business law and accounting.

      When William Allen decided, very much against the wishes of the Air Force, to do a common prototype for a jet powered tanker/transport to support the B-52 and other needs, and have that same prototype become the basis of a commercial airliner it was a huge gamble. It was changing the nature of the company, and an attempt to diversify. He bet about 25% of the company’s net worth on the endeavor, and without enough advance commercial sales to justify it. On top of that, More than one airline refused to buy it unless some major changes were made, so what was in effect a second prototype was built that was about 4″ wider. The financials for this endeavor looked horrible at first.

      Allen argued that what they were doing was like starting a whole new company, so the R&D investment should be treated like the paid-in capital provided by the founders in a new startup. This was absolutely contrary to GAAP and still is. R&D expenses of a going concern are to be expensed in the period incurred – period. There is no guarantee that a viable product or any future revenues will be generated. Also, when valuing assets, one is to consider how they would be valued in an M&A activity. A good way to ask about how an accounting block for a new airplane program should be valued is to ask what another company, say Lockheed, would be willing to pay for them. This is a fair question, even if it is hypothetical. It gets you to thinking about the alleged assets in question as abstractly as possible.

      A very reasonable argument could have been made in the 1950s that when it became clear that the Constellation series of planes was a dead end, that Lockheed might have even been willing to pay a premium over what Boeing had invested in the commercial share of the 707 program. So program accounting was born.

      This approach remained reasonable and accepted for use by Boeing as a well understood departure from GAAP because it worked. For one program after another, the company’s approach was successful and led to tremendous profits. It came into question again in 1970 when the 747 program ran into trouble, but that too proved to be a winner. However, things changed with Harry Stonecipher refused to fund a super critical aspect of the 787 program’s execution plan. By not funding the engineering support that was part of the supplier management part of the plan, the program schedule became a fairytale. Arguably, the program’s development costs should have been written off in 2007 when it became clear that the program was multiple years behind schedule (about seven on a five year program as it turned out).

      But certainly there was absolutely no remaining justification for not writing it off in 2012 when the decision was made to not start burning down the accounting block (i.e. the program development costs, or “deferred expense” as it is called in the financials). And by GAAP, that would have been the year that the company went bankrupt (i.e. the equity section of the balance sheet became a net negative number).

      If the United States Congress decides that Boeing is a critical national asset and decides to take it over and rebuild it, then we would be back into justifiable program accounting again. That’s because saving Boeing would require an investment sufficient to get back on track with an equivalent to Mulally’s 20xx program plan. It would be just like start-up paid in capital again. But to do that, we would be talking about several hundred billion dollars, maybe even the better part of a trillion. My bias is that the country should do it, and use it as the lead-off program to restore the country’s manufacturing base which was foolishly shipped over seas with that insanity of Reaganomics, but obviously, that’s a big ask, and it would have to be a bipartisan program on a par with the old space program. That said, Keynes’ depression era and pre-war observation that “anything we can do, we can afford to do” is still good advice, and a reasonable rallying cry. All we have to do is quit pretending that the current approach is working, stop digging our hole deeper, and commit to a new direction.

      • Allen knew the B-52 needed a jet powered refueler as no prop tanker could fly as fast as the slowest safe speed the B-52 would at refuel. So with time the big USAF order would come. Then Boeing could make a better airliner than the de Havilland Comet from it.

        • Yes, and Curtis LeMay was adamant that Boeing be the builder, so while there was a competition, it was rigged from the start. That said, he was fit to be tied with Allen’s decision. LeMay would often and quite openly refer to Boeing as “My Boeing Company.” He was a a dangerous guy to have in charge of SAC. George C. Scott’s character General Buck Turgidson in the movie Dr. Strangelove was a very thinly disguised caricature of of LeMay. LeMay went on to be George Wallace’s running mate in the 1968 election, which was at least as crazy as the one we have coming up. LeMay quite openly gave campaign speeches calling for us to drop nukes on Hanoi. The man was clearly insane.

  7. Boeing will announce a loss tomorrow. Though some of saying its a smaller loss than predicted (hate when they say that, who is doing the predicting?) The attention will be, better be what is the executive’s team plan to stabilize then grow. With the latest events in the news,” just trust us” will not suffice. Would not surprise me if there are some announcements of departures tomorrow.

    • ‘Would not surprise me if there are some announcements of departures tomorrow.’

      Any predictions?

      • MAX-7 Anti Ice Waiver. Now 2026 for a fix? And how about all those -8s and -9s flying and being produced that have the same problem?

        The MAX-7 exemption is the first sacrifice though its kit not a person. Boeing is praying that no one starts to talk about the EICAS exemption.

        Then Stan. That is a prediction.

        What happens after that depends on how many legs the story has. If it keeps going, then Calhoun. That is not a prediction, its certainly a possibility.

        Calhoun is quoted as saying, I Am Glad She Made Us Do the Right Thing (Cantrell or Duckworth). I am all for Calhoun doing the right thing and quitting now.

        That said, you can see the Political Bias in play, Dukworth talked about how she went to war in a Boeing product and how she wanted to make it work.

        Not safety, but getting Boeing off the hook (my take).

        So yea, does the spin win or do the facts force a change.

        Stay tuned.

        • There might be a good engineered and tested solution involving a series of thermal bleed valves in the lipskin if the temperature of the structure gets to high. Maybe not old bi-metal Bosch car blinker relays but you get the idea.

      • Depending on how bad or not as bad the numbers are, I can see Calhoun announcing a retirement date. That will placate the wolves at the gate.

          • Scott has it spot on, not that he needs me to tell him that.

            These things have an obvious progression.

            It starts with deflect, this is too gross for that.

            Then its start sacrificing pawns (MAX -7 waiver)

            Then Stan

            If EICAS gets press as another waiver, that gets sacrificed.

            If that and all the false tears does not work, then Calhoun gets axed (of course he will quit to go spend time with his family)

            It takes months to play out. And that what they do is play for time and hope it goes away.

            Stay tuned as my mom would say.

            Film at 11 as a brother would say.

  8. Scott and team,
    Excellent piece, thank you. Providing a better understanding of FCF is very helpful.
    Agreed that during tomorrow financial report there will be no change in the executive ranks.

  9. I know its simplistic, but I did not get it. Its well written but I don’t see the bottom line. as my metric is.

    Are they retiring debt or not?

    To me (and again I am a financial simpleton) all the rest is what the financial guys need, but in simple terms, not retiring debt?

    1. The ship has a lot of water in it but its not getting worse (and we know it just got worse)

    2. The water level is increasing and that is not good.

    3. Water level is decreasing and depending on how slow or fast that is, gives us an idea how we are doing (slow is not good)

    The report I saw said they had reduced the losses from $1.79 a share (don’t quote me or jump on me, it was ballpark) to 79 cents a share.

    I don’t know if that reflects progress, or its out of context for the big picture and its a cover over for what is going on
    clearly there is another torpedo out there headed for the ship and what kind of blow is that?

    ie a stop of the ramp up and how does that affect the real story for sinking or not?

    • The ship is filled to infinitesimal small positive buoyancy.
      the last rats shouldering their heavy bundles stand on the ships sides
      ready to jump.
      Whenever one jumps that gain in buoyancy will immediately replaced by some more water.

      it’s a bit similar to hot, wet air rising: lossy but warming condensation as long as it remains even slightly wet. top out is fully dry. condensation ~= moneys siphoned off.

  10. There are several way to generate positive FCF. During the Max shutdown, Boeing accumulated an enormous amount of unsold inventory they could not turn into postive cash. In that sense, it will seem to be raining cash while Boeing burns off the old inventory. If the Max7 does not certify this year then all of the accumulated work and inventory will be stuck in unsold purgatory.

    Certainly selling out-year delivery slots can help to generate cash, but unsold inventory is where the preponderance of FCF is banked. Prepare for Boeing to hold tight on their payment terms to suppliers at the same time.

    • Boeing Commercial has about $40 billion in actual Inventory.

      Deposits from Customers: $56 billion.

      Short & LTD: $53 billion.

      Just a small difference of some $69 billion there…

      (don’t get started on A/P & Accrued Liabilities)

      • Where I am headed is that one of the primary reason anyone cares about FCF is that it is a health indicator into whether a company can pay the bills without resorting to issuing or restructuring debt (or equity). It would be interesting if someone had a handy table of when Boeing’s debt instruments were actually payable and under what interest terms they are financed.

        The Boeing debt is certainly massive, but as long as it can be restructured then Boeing will be able to fund its operations and keep the lights on.

        I would also be interested to know how much of a build in Boeing inventory ($) will now accrue through likely FAA actions over the next 12 months.

        • Casey:

          You express more of my interest than anything I have seen.

          I am a bit at a loss of Boeing having 40 billion in Inventory? 90 or so 787s not delivered and 150 737s?

          And as massive as the debt is, that load probably was low interest when it occurred.

          So yea a breakdown of interest rates they pay or various chunks of it.

          How much backlog Boeing winds up with due to the door blowout and slowdown is a guess right now and not a good one.

          It depends on the FAA and what they find (and their part in it).

          I can range from what Scott said as a complete stop to slow deliveries.
          Its going to take a month or more to see and I doubt the FAA knows.

          The FAA is looking right in the face of not just one failure, but a long sequence of failures focused on just the Door Plug or Door build.

          They did not catch it or they did nothing about it – so they are blind or complicit. The FAA regional offices were known for their independence (keeping in mind this is two regional offices involved)

          Scott likely knows what the consensus is there.

          • Valuing undelivered airplanes is a bit tricky. Part of the reason is that in most cases not all of an undelivered plane belongs to Boeing. These are not normal inventory in the sense of the stock of a retail store or the unprepared food on hand at a restaurant. Undelivered airplanes also have an element of liability to them.

            Generally, when you buy a new plane there is a payment schedule. A deposit is required at the time of the order to secure a production slot. Then when the first wing spar is loaded another payment is due. A third is due when the plane clears the final body join station. the final payment is due on delivery, but there is a bit of accounting slight of hand that goes on such that the place of delivery is counted as the point of sale for all four payments. Except there is more.

            The customer buys the avionics package and their cabin interior separately. Boeing has a catalog of those items that are known to be easy installs, so there is a lot of pressure to “stay in the catalog” to avoid added installation costs. And of course there are the engines. All of that is CFE (customer furnished equipment).

            CFE is not Boeing property, and it doesn’t show up on the books. That’s ok in normal times. But let’s say that a bunch of carriers who have ordered a particular model plane decide they don’t want it any more because Boeing has missed its delivery window. Further, let’s say that some crazy Irishman decides to buy these planes at some ridiculously low price, taking advantage of the situation. Who pays to remove all of that CFE and return it to their owners? Who pays to repaint the plane? Those are known future costs (liabilities that are not on the books), and they are in addition to whatever costs are yet to be incurred to get a plane its ticket.

            Oh, and one more thing to consider, where will that work be done? In effect an assembly line needs to be setup that specializes in refurb work. Building planes into inventory is not a clever thing to do.

            Oh, and O’Leary likes his built-in air stairs which almost nobody else orders except for BBJs. That is a SUPER expensive install after the fact.

          • Back when the 787 had a massive increase in undeliverable inventory My impression was that inventory value was determined by lumping all cost accrued on an airframe and that was booked as a number in inventory. this could be wrong.
            ( i.e. inventory value was 2 to 3 times what the sales value seemed to have been. Some Ostrower research brought that to light. )

            In a way this could explain why Boeing is reducing inventory at a snails pace.
            Inventory value and moneys received on delivery are magnitudes apart.
            787, 737MAX same observation.

          • RTF:

            A good clear layout, I had not thought about CFE, and it belonging to someone else. Is it in contracts how that is handled if it occurs?

            Maybe adding a bit, if its just a hull, no CFE, then its an different case than got all the way through orough with CFE and then …….

            I assume that its all negotiated with the new buyer on the change over, you get a great bargain but……. Or how desperate Boeing is.

            A lot of MAX were built for China and Boeing sold half of them at last memory to Air India?

            The 787s, phew, CFE and late delivery and do they still want them, a lot more money into the interiors there. Re-paint is the easy part.

            So yea, you can recover cost from it, all depends on demand but 50% to maybe 100+% if airlines are desperate but only a white tail has a given core value. And the clock is ticking on maint and while not rapid, there is a deter oration factor invoked with just sitting.

            A good case in point is the 757 FedEx tried to get to Asia for conversion. It has sat in Florida for 5 years not moving, they could not get enough stuff to work to fly it to Asia (one Airport out in the middle of that at Shemya on the Aleutian Chain, ungh)

            So back to the US where they could be in gliding distance of at least some kind of an Portrait most of the time.

          • Bogash would know better than me about how the contracts handle CFE coming off of planes that are going to a different customer. If I were to guess, I would think that the contracts would be silent on that topic, since you don’t get that far in the sales process with anything other than an intent to see things through to delivery.

            Oh, and changing the livery of a plane is more expensive than a normal repaint. The edges of the some of the moveable surfaces are really hard to get at, so it takes longer, and it takes a painter’s assistant so the surfaces can be moved as much as possible to get at those edges. In normal production, the hard to get at surfaces are painted before assembly. A typical assembly site has two haz/mat rated paint locations. One is in the main factory building someplace, and does things like the door jambs, rudder sections, and some other parts, depending on the model. Any specialized sealants can be applied in there as well. The other is a separate building for painting the rest of it after final assembly is complete. When delivery volumes were at max, Boeing did not have nearly enough paint hangar capacity at the three Puget Sound sites with runways, and sent a lot of planes down to Portland.

  11. Boeing Penalties:

    That is another areas of possible loss.

    Clearly South West can get penalties for the late -7s (maybe never to be seen) but will they?

    Keep squeezing blood out of the in debt turnip and ??????????//

    Airlines heads have to be asking themselves that question, do we want money in the short term to possibly drive Boeing under?

    Of course that all depends on contracts and what Boeing has committed to, its possible -10 deliveries are not in penalty.

    But stay tuned, the quarter we are in will tell us a lot though its going to play out over the year for sure.

  12. For anyone that is curious of my logic…it takes six aircraft that have a stated 20% margin to generate the same FCF as an aircraft sold out of long-term inventory at the same margins.
    6 aircraft made out of normal flow X $25M COGS (and 20% margin) = $30M
    1 aircraft sold out of long-term inventory is a pure $30 FCF

    I have to believe the controller at Boeing is having panicked calls with every major supplier to slow down the supply chain to avoid the dead inventory and negative FCF.

    Margins matter in the long run but cash matters in the short run. Many companies have gone out of business not because they were unprofitable but because they simply ran out of cash.

    • Wouldn’t aircraft from Long-Term Inventory have higher
      associated costs (storage, maintenance, refurbishment and inspection) ?

      • It’s a fair point. Certainly COGS on old inventory will go up (how much I do not know). I have not seen a handy number that indicates the retrofit cost per aircraft. But when you look at what the MCAS retrofit actually entails…it is certainly a relatively small number next to the original aircraft manufacturing cost. Even if all the costs incurred from converting a pre-MCAS B737 to a saleable aircraft today was $1m…that still equals a whopping $29M in positive FCF.

        • A little history:

          At one point in time, before the grounding was lifted, Boeing had some 450 Max’s sitting in storage in the employee car park in Renton.

          Everyone cheered, claiming it was a veritable gold mine for the company and cash would roll in by the bucket, when it was put back in service.

          Now they are down to ~150, with 30 of them being Max 7’s for SWA.


          What have those 300 deliveries brought them? A cash bonanza? No.

          At the start of 2021 they had over $25 billion in cash & deposits on hand. Unearned Revenue went from $50.5 billion at that time, to $56 billion, as of Q3/2023 end. Customers gave them an extra $5.5 billion.

          Cash and deposits are just over $13 billion.


          I’m sorry, but those aircraft are costing BA money, not making them money. Cash or margins.

          • I am not the CFO of Boeing. There were a lot of factors that went into that drawdown of cash. Not delivering MAX aircraft for 20 months is a major contributor. The employees at Boeing are not paid in smiles and those cost were not offset with aircraft revenue. Those aircraft were not delivered free of charge, and if the retrofit costs were really that prohibitively high, then Boeing could have simply declared a write-off of the 450 aircraft. Another indicator to contemplate which Boeing does not share is “how far down the learning curve” they are. If they are not at break-even yet, then it will have the perverse effect of inflating FCF (assuming operations can be scaled to avoid inflating COGS)

            Circling back to FCF…another helpful way to view FCF is that it should nominally equal net profit (e.g., you are turning your profits into cash). If there are a string of discontinuities then that is warning sign that cash is coming from raiding assets or by taking on more debt.

          • The 737 built inventory was spread from Renton, to PlantII to Victorville and the majority in Moses Lake

          • Also, Frank P says everyone was cheering, I am and was not.

            No matter how you slice it, non delivered aircraft are a loss.

            It may be 50 cents on the dollar spent (in all ways) or you could even turn a good profit if it sells during a demand surge.

            But its still an asset that sat there not getting you revenue and the material costs did not go away as well as what Casey notes, employee salaries to build them (even if you laid them off latter)

            Now sometimes its going to happen, Covid down turn. You do not think China was ecstatic to ground the MAX? Of course they were.

            Equally or more so it was the right move, but that does not mean all delivery delays are negative and an airline might well keep it and happy to take them and have them in their pocket if things pick up (like they have in all but China ironically)

          • Future losses passed down on these aircraft with concessions made for free maintenance, thus screwing a different business model.

          • “free maintainance”

            promises, promises.

            who takes promises from dead men walking?

        • ‘If there are a string of discontinuities then that is warning sign that cash is coming from raiding assets or by taking on more debt.’


          And what is Unearned Revenue ( Advances and progress billings) if not a form of debt, sitting in the Liabilities section of the Balance Sheet, just above;

          Short-term debt and current portion of long-term debt

          Which is exactly what is being postulated above.

    • @Casey

      ‘aircraft that have a stated 20% margin’

      Stated where? Curious to now where you got that figure from. Not from the BA financials:


      Total Costs and Expenses (“Cost of Sales”)

      Cost of sales, for both products and services, consists primarily of raw materials, parts, sub-assemblies, labor, overhead and subcontracting
      costs. Our BCA segment predominantly uses program accounting to account for cost of sales. Under program accounting, cost of sales for each
      commercial aircraft program equals the product of (i) revenue recognized in connection with customer deliveries and (ii) the estimated cost of
      sales percentage applicable to the total remaining program. For long-term contracts, the amount reported as cost of sales is recognized as
      incurred. Substantially all contracts at our BDS segment and certain contracts at our BGS segment are long-term contracts with the U.S.
      government and other customers that generally extend over several years. Cost of sales for commercial spare parts is recorded at average cost


      The following table summarizes cost of sales:
      (Dollars in millions)
      Nine months ended September 30 2023 ………2022
      Cost of sales $50,749 $44,962
      Cost of sales as a % of Revenues 91.0 % 96.4 %


      But these margins of 9% for 2023 (so far) and 3.6% (2022) are based on averages derived using program accounting and don’t reflect what the unit cost actually was:

      Commercial Airplanes Unit Cost vs. Program
      Segment Information – Earnings from Operations
      Boeing Commercial Airplanes

      2023 1Q23 2Q23 3Q23
      Commercial Airplanes – Program Accounting (615) (383) (678)
      Commercial Airplanes – Unit Cost Accounting * (1,871) (919) (1,148)


      Any overages are socked away in Inventory, in the DPB. Kicked the can down the road.


      Margins vs Cash

      You are correct. As long as Boeing can hang on, keep the lights on, the staff paid and keep up with the interest expense, they can operate.

      They can increase their payables, get more deposits from customers, but you cannot continue to keep delivering aircraft at a loss, to airlines and expect to survive.

      Over the past 4 years, they have spent a whopping $10 billion on interest payments alone.


      About Margins;

      The benchmark for Boeing is 2018, in which they had record revenues and margins. $101 billion in sales and some $12 billion in profits. BCA had a margin of 13%.

      Since then, it’s been 5 years of losses.


      Years ended December 31, 2018 2017 2016
      Revenues $60,715 $58,014 $59,378
      % of total company revenues 60% 62% 64%
      Earnings from operations $7,879 $5,452 $1,981
      Operating margins 13.0% 9.4% 3.3%


  13. All good points. 20% stated margin was simply an academic exercise I chose to illustrate the relative FCF value of burning down old inventory. It is not based on any intelligence I have of BCA margins.
    If the margin moves to 10% then old aircraft delivered equals 11 aircraft out of normal production. Move it to 30% and the ratio is 4.33. The pain of unsold inventory is only relative.

    You almost mentioned program accounting which has the effect of artifically raising the margin for current sales. When you look at actual COGS on the B737 aircraft delivered to date I am more inclined to believe the non-program accounted margins are closer to 10% than 30% (not helpful to BCA). Those deliveries of 777 Classics and 767F were cash machines to Boeing…and those deliveries are on their last legs.

    I also do not have intelligence into the lead-time of when Boeing starts to incur COGS (2-3 years seems reasonable when contemplating the entire supply chain). A knock-on effect of slowing the entire chain is going to be the stress at sub-tier suppliers. That will be a fun conversation Boeing has with its suppliers to ensure that they have enough cash to fund operations if they are the ones holding the surplus inventory that cannot be slowed.

    • Boeing would love to have a 10% margin at BCA. They would be happy with a break even proposition.

      They can’t get there, even with their magical program accounting fancy footwork.

      • The only thing worse than making 10% margin on aircraft is making those same aircraft and not selling them at all for a meaningfully long timeframe.

        • Segment Results
          Commercial Airplanes 2023

          Deliveries 528
          Revenues $33,901
          Earnings/(loss) from operations ($1,635)
          Operating margins (4.8) %


          You know what’s even worse than that?

          Selling 528 aircraft and losing $1.635 billion or a negative 4.8% margin.

          That would be 5 straight years of negative margins at BCA

          • even more damning:
            GAAP numbers under Programme Accounting.

  14. Boeing narrows losses but holds off on 2024 guidance as 737 Max 9 crisis looms


    Boeing narrowed its losses at the end of last year but the manufacturer’s 737 Max 9 crisis raises questions about its financial targets.
    The company did not provide a 2024 outlook, weeks after a fuselage panel blew out midflight on a nearly new 737 Max 9 on Jan. 5.
    The company’s free cash flow of $2.95 billion in the quarter topped analysts’ expectations.

    That is an improvement.

    • Here’s how Boeing performed compared with what analysts polled by LSEG, formerly known as Refinitiv, expected for the last three months of 2023:

      Adjusted loss per share: 47 cents vs. 78 cents expected
      Revenue: $22.02 billion vs. $21.1 billion expected
      Boeing posted a net loss of $30 million, or 4 cents a share in fourth quarter, narrowing from a $663 million loss, or $1.06 a share, a year earlier. Adjusting for one-time items, Boeing reported a net loss of 47 cents per share.

      Its free cash flow of $2.95 billion in the quarter topped analysts’ expectations. Revenue grew 10% year over year to $22.02 billion.

      • And still another program is in trouble (back in trouble)

        Three step forward and one or two or three steps back is very slow progress to no progress and 4 steps back?

        Normally it might be good news, but now?

        That does not reflect the various revenue hits on -7 delay penalties (and how many hulls built) -7 deposits – and -10 not delivered and -10 deposits.

        The Drum section in the Orchestra has not been heard from.

    • Calhoun is saying the right words, leads off talking about the Alaska incident and acknowledging why everyone is pissed.

      • To his credit Calhoun is owning it

        Expects engineering solution to max 7 situation. Max 10 will get satisfied when the FAA decides.

          • About a year to engineer the icing issue. Calhoun told Senator it would take 9 months to engineer a solution.

        • Williams:

          Owning it is giving the MAX money back and then quitting. I prefer the Japanese method myself. That shows true contrition.

          Calhoun thanking a US Senator for making them do the right thing? Phargh. Clearly someone has to feed him baby food, he can’t feed himself.

          As noted above with Scott, its just another leaf in the play book.

          • Nobody wins when there is only one major producer of any product. Like it or not we need Boeing to keep Airbus honest (and vice versa).

            As it stands Airbus has a hall pass to do nothing (if they should choose) for the next 10 years.

          • “we need … ”

            That is an oxymoron.
            Airbus existence was not able to keep Boeing honest.

  15. The Boeing Company and Subsidiaries
    Consolidated Statements of Cash Flows

    Cash flows – operating activities:
    Net loss ($2,242)

    Advances and progress billings 3,365


    So Operations is costing cash flow some $2.2 billion, while those Deposits from customers, contributed $3.4 billion.

    When they are returning goods to customers, it’s at a loss.

  16. Interest Expense….a killer.

    The Boeing Company and Subsidiaries
    Consolidated Statements of Operations

    Loss/(earnings) from operations (773)


    For a company the size of BA, a loss of $773 million isn’t terrible. Especially given the circumstances.

    But then you tack this on:

    Interest and debt expense (2,459)

    And you’re climbing a mountain.

    • Yes considering their recent good years had EBIT around 8-11%, that’s 25 billions in revenue burnt to just service debt. As revenue in the same good years topped at 100 billions and now is closer to 75 billions, between every third and every fourth plane is delivered just to service debt.

      Or did I miss something ?

      • The Boeing Company and Subsidiaries
        Consolidated Statements of Operations


        Total revenues…………………………. 77,794 ……..66,608

        Loss/(earnings) from operations…..(773)……….(3,519)

        Margins from operations aren’t enough to cover Interest Expense.

        But yes, IF…Boeing made a 10% margin, it would take $25 billion in revenue just to cover interest.


        Commercial Airplanes

        Revenues $33,901
        Earnings/(loss) from operations ($1,635)
        Operating margins (4.8) %

        Boeing should thank it’s lucky stars for Global Services

    • Can we get a percentage of interest being paid on that debt?

      My calculator unfortunate does not have commas in it (periods for the European group) and I get lost trying to do them thar big numbers.

      note: My data numbers always were under a million so I never had to figure out how to get the real numbers needed out of it (HP by the way, love RPN)

      • Duh, simple!
        you enter millions. ( no zeroes!)
        you get millions as an answer.
        same for billions.

        • AT the end of 2022, they had:

          Short-term debt and current portion of long-term debt 5,190
          Long-term debt 51,811

          $57.001 billion

          Interest and debt expense (2,459), for 2023

          Just over 4.3%, which is actually pretty reasonable


          What’s remaining?

          Short-term debt and current portion of long-term debt 5,204
          Long-term debt 47,103



  17. Interesting comments ! Thanks !

    In the end the main risks associated with the deposits from customers (Unearned Revenue) is that it is counted as cash flow vs a particular year. But should cost increase on the delivery year (say you have to slow production line but keep paying employees, then customers has waited too long and does not want it anymore you need to store, maintain, remarket and repurpose the plane) then the cash flow on that particular plane becomes negative.

    And that’s not even counting the R&D costs incurred in the program that have had their share of overruns as well.

    Where does all that get reported as cost/loss in the end?

    Is Boeing holding its customers in hostage? If they don’t want their planes anymore, Boeing risks getting out of business and Airbus will gain a monopoly in a offer-starved market. Boeing customers will be at a strategic disadvantage vs Airbus customers (who ordered early at low price) and will run into issues too.

    Large parts of the industry are on the same boat as Boeing (UA, SW, AS, FR, WS), a lot of them in the US. Some of them already have a competitive risk if the max10 does not get approved s8on (as 321neos delivered before 2030 are a rare breed).

    How long can that hold ? Considering the de capitalisation comment, is Boeing an empty shell?

    It’s interesting how Ebit margin was very stable up to 2016 about. Then it became unstable. Any particular event to link this to ?

    • @Jane

      ‘Where does all that get reported as cost/loss in the end?’

      Using program accounting, Boeing can do a few things;

      1) It can pile those expenses into the Deferred Production Balance, pulling them out on later deliveries (reducing their margin and essentially kicking the can down the road)

      2) It can write off amounts in the DPB, like the $6.5 billion on the 777X program and $3.5 billion on the 787 program.

      3) Finally, when it’s all said and done and the last delivery is done, it will close it all out and write off any remaining amounts, like it did on the 747 program.

      It’s an awful lot of smoke and mirrors….

  18. 140 737s
    50 787
    built waiting for rework
    China is taking deliveries.

    End of Call, thats it folks. Leeham will no doubt have a more detail article on it.

    • williams:

      Thank you a lot fewer 787s than I thought, about what I thought 737s were but had no confirmation.

      How many deliveries is China taking? I know of One.

      Last report I saw a few days ago is Chinese Airlines are struggling as the post Covid economy is faltering. One huge company liquidated (that had been in bankrupt court)

      A lot of people are not investing in China anymore. Its not that they are closing operations down, they are opening up operations in other countries.

      That impacts growth so its going to be interesting to see what deliveries look like.

    • I would say that is possible, but as the -7 is the lead aircraft, another year for the -10 then?

    • Truly the Elephant in the room.

      Well one of the Elephants.

      The other one while is a joint issue Elephant (or 3 Elephants) is the complete failure breakdown of Spirit, Boeing and the FAA to do something about the Rivets in the door (and that is the one we know about, factory checks are going to show up others but they all are or will be known as failures)

      But that elephant falls into 3 levels of carnage. Spirit having to resume quality, Boeing having to resume quality and deal with its suppliers and the FAA has to fix a massive failure itself.

      There are Elephants within Elephants (or is that the Russian Doll Thing?)

  19. While I am not a fan of the Daily Mail its hits the nail on the head and with some excerpts to the right worth reading


    Calhoun in his stupidity says it can’t and it did and all the right question about it being the most scrutinized aircraft in the world and a simple, stupid, easy to see and correct Riveting failure set this all in motion.

    Responsibility witho0ut accountability is a zero sum amount of BS.

    Mulenberg all over again.

    The Pebble that started the avalanche .

  20. Free cash flow is the most important metric, period. Everything else can be manipulated for a very long period of time. Good quarter for Boeing. Primary goal is now to get MAX 7 and MAX 10 de-ice issue fixed and certified as fast as the slow moving US government agencies allow.

    If I had made investment decisions based on most commenters on this site, I would have lost piles of money shorting Boeing or selling BA Puts. Good thing I went long BA not too far from the bottom and didn’t listen to the commenters on this site who all seem to think they are smarter than the investment professionals on Wall Street.

    Can’t wait for the dividends and buybacks to start in 25 or 26, go BA! Need to move the whole company to SC so we can get rid of the overpriced labor in the Seattle area.

    • “Everything else can be manipulated for a very long period of time. ”

      cue Boeing:
      Free Cash Flow seems to be in the same domain. :-=)

    • Those entities get deployed now on a pro forma basis.
      That one has as many unsupported assertions as might be found.

      “We’re Boing, and we’re awesome!” has rather a hollow ring these days.

      They know that, too.

  21. Boeing 777s’s are replaced by A350’s everywhere.

    Mostly ignored, for now.

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