Why Boeing Keeps Losing Money on Each 787 Dreamliner

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

Amid all the fine financial news Boeing 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.

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