Boeing reported earnings for its September ending quarter this week that included some further information regarding the troubled 787 Dreamliner program. Air New Zealand 787-9

Revenues for the aerospace provider’s commercial aircraft division rose 15 percent as a result of stepped-up production deliveries.  However, operating margins dropped to 11.2 percent from 11.6 percent a year earlier.

In the earnings report, Boeing’s CFO again indicated that Boeing sells each Dreamliner for less than it costs to manufacture this aircraft, and that the program spending broke through the $25 billon milestone barrier this past quarter.  Boeing utilizes accounting measures that allow it to spread program costs and revenues for the 787 program over a longer multi-year horizon.

In its reporting, The Wall Street Journal characterized that development as suggesting that reducing costs on the program is taking longer than expected. This news calibrates with reports in June indicating that Boeing has re-negotiated certain long-term component supply agreements with major suppliers of the 787 and other aircraft.

Also noted by the WSJ in its reporting is that turning cash positive on the 787 program is central to Boeing’s efforts to boost shareholder returns through stock buybacks and higher dividends. In the earnings briefing, Wall Street financial analysts peppered questions regarding concerns that planned production increases across various aircraft programs would delay ramp-up in shareholder’s payments.

That is not a good omen for those participants in Boeing’s supply chain ecosystem who can anticipate further pressures for cost reduction and efficiency gains.

Bob Ferrari