Why Boeing’s 787 Dreamliner Remains a Financial Mess – Businessweek

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A Boeing 787 Dreamliner test aircraft in a hangar at Air New Zealand Ltd.'s technical operations base at Auckland International Airport on Jan. 5

Photograph by Brendon O’Hagan/Bloomberg

A
Boeing 787 Dreamliner test aircraft in a hangar at Air New Zealand
Ltd.’s technical operations base at Auckland International Airport on
Jan. 5

(Corrects Boeing’s earnings in the seventh paragraph. )

Amid all the fine financial news Boeing (BA)
can tout—a record order backlog, robust profit margins, a higher profit
outlook—one of the airplane maker’s dreariest performers continues to
be its highest-tech, most fuel-efficient product: the 787 Dreamliner.

Boeing
continues to lose money on each Dreamliner it builds. The company
expects to reach the break-even point on some models turned out by its
787 program in 2015. In the most recent quarter, production costs rose
again for the 787, which has become one of Boeing’s most popular models
due to its lightweight carbon composite airframe and the resulting lower
fuel burn. The program’s deferred production cost, an accounting
measure of how efficient an assembly program becomes over time, rose 4
percent, to $25.2 billion, in the third quarter, topping the $25 billion
cap Boeing had forecast for the 787 program.

Of course, Boeing
officials insist the 787′s assembly costs will continue to drop over
time as workers improve the efficiencies of the line and the rate at
which they can build new planes. But the airplane—which suffered several
delays before its 2011 introduction and then a grounding due to battery
fires—remains a critical drag to the commercial airplane division’s
financial performance. Wall Street analysts are ready to see black ink
in the program and pressed Boeing officials repeatedly on Wednesday,
Oct. 22, about how quickly the 787 can stop bleeding cash.

“Continuing to make progress. Still got a long way to go,”
Boeing’s chief financial officer, Greg Smith, said in summarizing the
787 program. “We’ve got the enterprise engaged on how to capture
productivity.”

The 787′s troubles have also contributed to weak
performance for Boeing’s stock, which fell 3.5 percent on Oct. 22 and
has now lost 10 percent this year. Boeing’s record order backlog of
5,500 airplanes has not yet manifested itself much in the company’s cash
flow, given that most of the payment for a new jet comes at delivery,
with only a modest payment made at the order. And Boeing faces some
heavy spending for engineering and other development costs on three
major new programs: the largest version of the 787, the 777X, and the
737 MAX, Boeing’s upgrade of its top-selling model.

Boeing has a
backlog of about 850 orders for the 787. It builds 10 each month at two
plants and plans to boost output gradually to a dozen per month in 2016
and to 14 by 2020. It delivered 186 planes in the third quarter,
including 31 787s.

Overall, Boeing earned $1.4 billion in the third quarter, on
sales of $23.8 billion. The commercial order backlog is worth a record
$490 billion. The strong demand for newer, more fuel-efficient aircraft
prompted Boeing to raise its full-year profit outlook to a range of
$8.10 to $8.30 per share, above the former high forecast of $8.10 per
share.

Story: Boeing to Crank Out Even More of Its Top-Selling 737

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