Boeing has spent a lot of money on the 787 programme. How long will it take to make a profit on the project, and do investors care if accounting rules allow it to declare a unit profit now?
The first answer is possibly unknown, even within Boeing. The only thing that is certain is that internal spending on parts and productivity improvements will rise by at least $2.5 billion over the next nine months, and overall deferred production costs could exceed $30 billion before the programme reaches breakeven.
For the second part, Boeing’s shares jumped by 5% on 28 January, after investors learned that the 787 programme will become cash positive this year – even if the aircraft’s unit cost still greatly exceeds its sale price.
Boeing accounts for 787 profitability at the programme level rather than the unit level, which allows it to show an operating profit on the balance sheet for each Dreamliner delivered. Investors can be satisfied with this policy as long as it continues to give Boeing the flexibility it needs to continue developing new projects, such as the 737 Max and the 777X, while meeting production rate commitments for current models.
There may be a limit, however, to how long Boeing can defer the breakeven point on the 787 programme before spooking investors. That critical milestone is currently set for roughly 12 months away, and the company would be wise to honour it.
Source: Flight International
