- Boeing 787 program margins have eroded.
- Production should still be cash positive on a unit basis.
- Due to program reductions and consolidations, the implications to the deferred production balance are not fully clear.
- I believe that consolidations should keep the Boeing 787 on an acceptable trajectory in terms of financials.
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Boeing (NYSE:BA) will be reporting its Q3 earnings on the 28th of October before the opening bell. On that day, the company will detail the deferred production balance of the Boeing 787. AeroAnalysis deems the development of the deferred production balance and unamortized tooling and other non-recurring costs interesting to follow, since it directly impacts the free cash flow of Boeing, and we view the Boeing 787 program as one of the key drivers for earnings and cash flow growth going forward. Especially with the Boeing 737 MAX crisis in mind, the importance of the Boeing 787 program has increased as we explained in The Wall Street Journal.
Every quarter, we provide an updated view on the deferred production balance for the Boeing 787 via two reports. One report is a more elaborate model that enables us to come up with projections for the entire accounting block set by Boeing, while the other merely uses existing data to project one quarter ahead. In this report, the projection for the upcoming quarter will be dealt with.
If you don’t understand or are not familiar with the concept of program accounting and read the results of the model presented in this report, some things might not sound familiar or won’t make a lot of sense. Since the models AeroAnalysis develops and the results, presented exclusively here on Seeking Alpha, do attract new readers as well as returning readers, we are including a brief explanation on program accounting. Those familiar with the block numbers and the method in general can skip the program accounting paragraph. For those who are not familiar with program accounting, we recommend reading the paragraph below where we explain how program accounting works without making it overly complicated.
