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Is Boeing 787 Dreamliner Inching Closer To Break Even?

December 31, 2014 | About:

American aero major Boeing’s (NYSE:BA) revolutionary aircraft, the 787 Dreamliner, has attracted some headlines lately. The company expects its 2014 commercial deliveries to come in the range of 715 to 725 planes. However, there have been concerns as to whether Boeing will be able to meet its yearly target. The deliveries of its Dreamliner look a bit behind schedule. But such concerns have been put to rest by industry experts. Let’s take a look at the 787 Dreamliner program’s delivery schedule and assess whether regular deliveries will support Boeing to attain break even.

Picture from Wikimedia Commons

No worries regarding Dreamliner dispatches

As per the factory review undertaken by Reuters, Boeing has enough 787s to meet the current year delivery target of 110 units. The production unit survey showed that 14 Dreamliners are already ready and there are five more at the assembly. The plane maker has delivered 96 Dreamliners through November, and needs another 14 to meet the target.

Anxiety regarding meeting the delivery target rose when Zodiac Aerospace SA (ZC), a seat maker, said that a delay in production could bear an impact on the company’s profits. This also suggested that deliveries could get hampered. When Boeing was asked regarding this matter, the jet maker preferred to stay quite.

Smooth deliveries to help cover deferred cost

Maintaining smooth flow of deliveries is critical to Boeing. With every delivery Boeing will be able to reduce the cost and inch closer to the break even point. Boeing has invested billions in this project, and its deferred cost runs as high as $25.2 billion, reported by the company in the third quarter earnings call. As of now, the company has been losing money on every Dreamliner it sells. According to an analyst Richard Aboulafia of Teal Group, the company loses approximately $30 million on average on every Dreamliner it sells. Aboulafia came to this conclusion through the deferred cost production amount disclosed by Boeing.

Besides selling the Dreamliner below cost, Boeing explains that the increasing deferred cost is also attributable to the cost incurred on stocking up component parts for the new 787. The company wants to ensure that such parts are available when required in the factory so that there’s no production delay because of component shortage.

Picture from Boeing

Dreamliner critical to Boeing’s long-term prospects

The Dreamliner is a very crucial program for the company. In due course of time due to efficiency gain Boeing expects the cost to come down, thereby helping the company to level off. The Chicago-based company expects the Dreamliner program to break even in 2015. Generally aircraft production keeps going down with the passage of time as workers learn the trick to execute certain processes faster and more effectively. This helps in ironing out production glitches and minimizing the time taken to churn out a plane from the factory.

It is essential for Boeing to iron out all production issues so that there’s regular flow of Dreamliner deliveries. This would boost the company’s cash flow in a big way. The aircraft can then join the league of the 737 and 777 which are the cash generators of Boeing. Attaining breakeven is also important for Boeing as demand for the 777 is drying up since the time it launched the 777X. However, the 777X will hit the skies not before 2020. Until then Boeing will depend on the 737 and the 787 to sustain the revenue growth and cash flows. And it has already been three years that the Dreamliner entered service. It is good time for the program to breakeven and add to the profits of the company.

Also, investors can stay calm as the company’s deliveries for the year appear to be on track. Moreover, when the Dreamliner program becomes cash positive for Boeing, investors can expect to get rewarded with higher dividends and share buybacks.

About the author:

Quick Pen
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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