Boeing’s program accounting reduce future profits

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By Bjorn Fehrm

February 29, 2024, © Leeham News: Boeing published the results for 2023 on the 1st of February. It reported a loss of $2.2bn, compared with a loss of $5.0bn for 2022.

Experienced industry analysts know these results do not reflect the company's state, neither for 2023 nor for 2022. The reason is Boeing uses so-called program accounting for the production costs of its Commercial Aircraft programs. Based on Boeing data, the loss for 2023 would have been at least $3bn higher using classical accounting methods.

The program accounting idea is to average the high initial cost per produced unit of a new aircraft program with the lower production costs of units later in the program. Thus it smooths the reported profits for a new aircraft program.

It has recently been used to “smooth” reported results of troubled aircraft programs, like the 737 MAX. The drawback is that once the troubles are gone, the negative effects on the company's future profits are not. We will use the 737 MAX troubles to show the effect of this variant of program accounting.

Picture of a 737 MAX production experiencing problems. Source; Boeing and Leeham Co.

  • Boeing increased the 737 Max deferred production cost pushed to future payment by 730% between the end of 2018 and the end of 2023.
  • The result of this way of using program accounting to reduce what is shown today is that future profits of the 737 MAX program will be reduced by almost a billion dollars per year during the next 10 years.

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