A $32B tally, but Boeing’s 787 costs don’t bother Wall Street

EVERETT — It is a mind-boggling number: $32 billion.

That’s how much money the Boeing Co. has spent making 787 Dreamliners so far.

Despite spending billions on the 787 program, Boeing’s stock value Monday — $123.99 — was well above the $69.73 it averaged in 2011 when the composite material airplane was first delivered.

Cash flow. That’s what matters most for investors and stock analysts.

The money Boeing has spent making Dreamliners is already gone.

“It’s sunk costs, so to some extent it’s not all that relevant going forward,” said a Wall Street analyst who was not authorized to publicly comment on Boeing stock, which he tracks.

What matters most for the company’s future — for paying investor dividends, for making payroll, keeping the lights on — is cash flow. The company and analysts expect the 787 program to bring in more and more cash every month.

Boeing has significantly cut 787 production costs in the past couple years.

The company will release its 2015 earnings report Wednesday.

Boeing leaders are expected to say if they hit the goal of becoming cash positive on the 787 program, meaning the whole program would be bringing in more cash than it is spending. Due to the nuances of corporate accounting, it would take a little longer before Boeing starts making back the money it already has spent assembling 787s. That amount totaled $32.2 billion when Boeing reported third quarter earnings for 2015. That included $28.3 billion in deferred production costs and $3.9 billion in non-recurring costs, including tooling.

Deferred costs are used as part of Boeing’s accounting method, known as program accounting.

Program accounting is used on a corporate balance sheet to give investors and company leaders a long-term view of how a corporation is financially performing, said David Burgstahler, an accounting professor at the University of Washington’s Foster School of Business.

“The idea of program accounting is to spread upfront development costs across a program’s lifespan,” he said.

Cash flow is more immediate, he said. “You can only stay in business if you have enough cash to cover your current costs.”

Even in 2013 — when Boeing was losing more than $100 million on each 787 — Boeing had enough cash to cover the costs. In the early 1990s, the company had enough cash to cover the early costs when it developed the 777. Deferred costs on the 787 program have dwarfed those of previous programs.

“Just eliminating (787) losses makes Boeing’s cash flow get better,” even if it is only breaking even, the Wall Street analyst said.

Still, he expects Boeing to at least make most of its money back over time. Worst case, if it has to write off a few billion dollars, it can absorb the cost, he said.

“I don’t know if another company uses program accounting in the same way” as Boeing, he said. “There’s not another company quite like Boeing.”

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.

Talk to us

More in Herald Business Journal

FILE - A Boeing 737 Max jet prepares to land at Boeing Field following a test flight in Seattle, Sept. 30, 2020. Boeing said Tuesday, Jan. 10, 2023, that it took more than 200 net orders for passenger airplanes in December and finished 2022 with its best year since 2018, which was before two deadly crashes involving its 737 Max jet and a pandemic that choked off demand for new planes. (AP Photo/Elaine Thompson, File)
Boeing inks deal for up to 300 737 Max planes with Ryanair

At Boeing’s list prices, the deal would be worth more than $40 billion if Ryanair exercises all the options.

Logo for news use featuring Snohomish County, Washington. 220118
Four recognized for building a better community

Economic Alliance of Snohomish County hosts annual awards

Logo for news use featuring Snohomish County, Washington. 220118
Business Briefs: Pandemic recovery aid and workforce support program

Snohomish County launches small business COVID recovery program, and is now accepting NOFA grant applications.

Elson S. Floyd Award winner NAACP President Janice Greene. (Olivia Vanni / The Herald)
Janice Greene: An advocate for supplier diversity and BIPOC opportunities

The president of the Snohomish County NAACP since 2008 is the recipient of this year’s Elson S. Floyd Award.

Emerging Leader Rilee Louangphakdy (Olivia Vanni / The Herald)
Rilee Louangphakdy: A community volunteer since his teens

Volunteering lifted his spirits and connected him with others after the death of a family member.

Emerging Leader Alex McGinty (Olivia Vanni / The Herald)
Alex Zitnik-McGinty: Find a group you like and volunteer!

Her volunteer activities cover the spectrum. Fitting in “service work is important as we grow.”

Opportunity Lives Here award winner Workforce Snohomish and director, Joy Emory. (Olivia Vanni / The Herald)
Workforce Snohomish receives Opportunity Lives Here Award

Workforce offers a suite of free services to job seekers and businesses in Snohomish County.

Henry M. Jackson award winner Tom Lane. (Olivia Vanni / The Herald)
Tom Lane: An advocate for small and local businesses

The CEO of Dwayne Lane’s Auto Family is a recipient of this year’s Henry M. Jackson Award.

John M. Fluke Sr. award winner Dom Amor. (Olivia Vanni / The Herald)
Dom Amor: Working behind the scenes to improve the region

Dom Amor is the recipient of this year’s John M. Fluke Sr. Award

Dr. David Kirtley at the new Helion headquarters in Everett, Washington on Wednesday, Jan. 19, 2022  (Olivia Vanni / The Herald)
Everett nuclear fusion energy company nets first customer: Microsoft

The Everett company, on a quest to produce carbon-free electricity, agreed to provide power to the software giant by 2028.

Hunter Mattson, center, is guided by Blake Horton, right, on a virtual welding simulation during a trade fair at the Evergreen State Fairgrounds in Monroe, Washington, on Wednesday, May 3, 2023. High school kids learned about various trades at the event. (Annie Barker / The Herald)
Trade fair gives Snohomish County kids glimpse of college alternatives

Showcasing the trades, the Trade Up event in Monroe drew hundreds of high school students from east Snohomish County.

A Tesla Model Y Long Range is displayed on Feb. 24, 2021, at the Tesla Gallery in Troy, Mich.  Opinion polls show that most Americans would consider an EV if it cost less, if more charging stations existed and if a wider variety of models were available. The models are coming, but they may roll out ahead of consumer tastes. And that could spell problems for the U.S. auto industry, which is sinking billions into the new technology with dozens of new vehicles on the way.  (AP Photo/Carlos Osorio)
Tesla leases space at Marysville business park

Elon Musk’s electric car company reportedly leased a massive new building at the Cascade Business Park.