Will investors see profits take flight with the Dreamliner?

By Max Ehrenfreund, The Washington Post

NORTH CHARLESTON, S.C. — President Donald Trump visited a Boeing factory Friday afternoon to show off the company’s newest model of the 787 Dreamliner, the latest in a series of planes that experts describe as a marvel of aeronautical engineering. The fuel-efficient construction allows the newest model to fly from London to Cape Town, South Africa, without refueling — an extraordinary distance for a 330-passenger plane.

There is one number on which the Dreamliners are still coming up short, however: return on investment. Analysts say Boeing has sunk tens of billions of dollars into designing and building the various models of the 787. Investors who have been with the project since the beginning may never fully see their money back.

“If you view it through a technology lens, it’s a great success,” Barclays analyst Carter Copeland said. “If you view the program from its inception, it’s a big financial failure.”

Last year, Ronald Epstein of Bank of America came to a similar conclusion. He told investors it was unlikely Boeing would recover its investment in the 787 program, Bloomberg News reported in April. Boeing is focused on improving production and profits going forward, spokesman Chaz Bickers said.

The program, which began producing planes in 2007, has been beset by delays and mishaps. Copeland said it is “virtually impossible to imagine” that investors will recover the fair value of the roughly $50 billion he estimates Boeing has put into the Dreamliner.

Epstein put the amount of the investment at $29 billion. Boeing is not disclosing the total investment in the project, Bickers said.

“Development costs are already spent — so we now focus on how we can improve profitability on production even more from here,” Bickers wrote in an email. “We have always said that the airplane has a very bright future — and like many of our other programs, will have decades of service ahead.”

For Trump, the visit is part of an emerging strategy of helping marquee American manufacturers using media savvy, salesmanship, and subsidies. Soon after his election, Trump negotiated up to $7 million in state tax credits over 10 years for the Carrier plant in Indianapolis, leading parent company United Technologies to reverse its decision to close the plant.

Yet economists have questioned whether Trump’s dealmaking with individual firms will benefit American workers as whole, as U.S. manufacturing loses jobs to automation and cheaper labor overseas.

Meanwhile, despite all the cameras, bright lights and the marching band at the Boeing plant next to the Charleston International Airport on Friday, it remains to be seen whether the numbers will add up for Boeing’s Dreamliner.

With the cameras trained on the president and the Boeing logo on the fuselage of the 787-10 Dreamliner behind him, Trump rattled off statistics about the plane. Then he listed each of Boeing’s military aircraft, asking the audience if they thought the Air Force should buy the company’s F-18 Super Hornet.

Trump had not come to sell planes, however. He was there to talk about economic policy, he told the audience.

“My focus has been all about jobs, and jobs is one of the primary reasons I’m standing here today,” he said.

“From now on, it’s going to be America first,” he said. “Working together as a unit, there is nothing we cannot accomplish, no task too large, no dream too great, no goal beyond our reach – just like you built this incredible airplane behind me,” he added.

In short, Trump was using the bully pulpit to present what analysts describe as a money-losing investment, from a firm in part supported by federal subsidies, as an example of his approach to the economy.

In 2008, Boeing’s workers went on strike for eight weeks, delaying delivery of the plane’s first model. In 2013, regulators grounded the fleet of Dreamliners worldwide when a battery caught fire on one plane after a commercial flight from Tokyo to Boston. The following year, Boeing announced that cracks were appearing in the wings of about 40 787-8 and 787-9 Dreamliners in production, forcing more delays.

Copeland said that while Boeing is not necessarily to be faulted for these issues, a project as ambitious as the Dreamliner has little tolerance for mishaps.

“Building airplanes is really, really hard, and when you mess up, it’s really, really expensive,” he said. “The amount of money that was lost to get to this point is a very, very large sum.”

But production is going smoothly now, Copeland said. Sales of the 787 are generating cash — Boeing projects about $30 million per plane.

The catalogue price of the 787-10 Dreamliner is $306 million.

At a conference last week, Boeing President Dennis Muilenburg told investors that the company has a backlog of about 700 preordered Dreamliners.

“The Boeing 787 program is going to be a great cash-generation machine for us over the next several years,” Muilenburg said.

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