Flight international

THIS WEEK

fiightglobal.com 15-21 August 2017 | Flight International | 11

NATS is cleared of

breaching licence

over Stansted traffic

Air Transport P

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fter logging 79 net orders for
the 787 so far this year, Boe-
ing could soon extend the ac-
counting block for the widebody
aircraft beyond 1,300 units in a
step that carries wider implica-
tions for the programme’s long
road to financial break-even.
“There’s an opportunity to ex-
tend the block this year,” chief fi-
nancial officer Greg Smith said at
the Jefferies Industrials 2017 Con-
ference in New York on 8 August.
As the 787-8 entered service in
2011, Boeing set the first account-
ing quantity at 1,100 units when
the programme had 860 firm or-
ders. As commitments increased
to 1,030 two years later, the com-
pany raised the accounting block
to 1,300 aircraft.
Boeing’s firm order count for
the 787 now stands at 1,275, only
25 units shy of the current ac-
counting target.
“There’s a lot of folks in the
pipeline from a campaign per-
spective that could come home
for the 787,” Smith says.
But a move disclosed by a sup-
plier a week before suggests plans
have been made to raise the ac-
counting block beyond 1,300.
Spirit AeroSystems, which sup-
plies the nose section and wing
components for the 787, an-
nounced signing a preliminary
agreement with Boeing on long-
term pricing. As part of the agree-
ment, Spirit set a “planning
block” for the 787 programme at
1,405 units.
By increasing the accounting
block for an aircraft, Boeing cre-
ates more breathing room on its
balance sheet.
The 787 entered service about
three years late due to a string of
design errors and production sys-
tem breakdowns. Boeing does not
expense aircraft development
costs, but retires that upfront bill
gradually with the proceeds from
each delivery.
The 787’s delays meant that
these deferred costs skyrocketed
to a peak of $28.6 billion by the

first quarter of 2016. Two years

and three months later, Boeing

had whittled that deferred cost

mountain down by 7.3%, to

$26.5 billion.

To avoid reporting another

substantial forward loss on the

787 programme – and to merely

reach break-even – Boeing has to

make enough money on each 787

delivery to chip away at the re-

maining $26.5 billion.

Boeing had delivered 565

Dreamliners by the end of July

and, based on its current

1,300-aircraft target, must

achieve an average unit profit of

$36 million on the remaining 735

deliveries for the programme to

break even within the accounting

block. By raising the accounting

quantity to 1,405 aircraft, the

break-even margin per unit

would fall to $31 million.

Boeing’s financial results show

that the 787 is making progress

towards that goal, but remains far

short of the targeted contribution

from each delivery.

Boeing handed over 33 aircraft

in the second quarter and reduced

the deferred production costs by

$531 million, implying an average

contribution of $16  million on

each delivery. That will have to

double on a unit basis for Boeing

to recoup its costs on 787 develop-

ment, even within an accounting

block expanded to 1,405 aircraft.

That seems like a high bar to

achieve, but Boeing still has two

levers to pull to improve the pro-

gramme’s financial performance.

First, the 787-10 is scheduled

to enter service next year as the

third and most profitable variant

of the widebody family. So far,

the 320-seat aircraft has logged

only 169 orders, or 13.3% of all

787 sales. However, Smith be-

lieves demand will pick up as the

type enters service with Singa-

pore Airlines, allowing other car-

riers to scrutinise the economics.

“Once it gets out and operating

I think people are going to love

it,” he says.

The second step involves rais-

ing the production rate yet again.

Boeing is already producing about

12 Dreamliners per month, the

highest-ever output for any wide-

body aircraft. But Boeing officials

are considering increasing the rate

to 14 per month in 2019.

Although such a move increas-

es the risk of saturating the mar-

ket and lowering aircraft values,

it also promises the benefit of im-

proving the efficiency of the 787’s

production system, increasing

the proceeds with each delivery.

Smith says: “We see a market

that supports the 14 per month

rate, but there’s more things to

take into consideration before

you commit to that rate increase,

and we’re working on that right

now.” ■

See World Airliner Census P

Margins on the new stretched variant will be higher, but so far sales account for just 13.3% of total orders

BillyPix

ANALYSIS STEPHEN TRIMBLE WASHINGTON DC

Boeing still dreams of 787 break-even

Possible accounting change will offer airframer more time to recoup remaining deferred development costs of $26.5bn

“Once [the -10] gets

out and operating

I think people are

going to love it”

Greg Smith

Chief financial officer, Boeing