Wednesday, April 20, 2016

Boeing Falls After Analyst Sees `Unachievable' 787 Cost Recovery

Boeing tumbled after an analyst downgraded the stock to “underperform” and said the U.S. planemaker stood little chance of fully recovering almost $29 billion that’s been sunk into producing the 787 Dreamliner jet.

The shares fell 2.7 percent to $129.15 at 10:04 a.m. Wednesday in New York. The stock earlier dropped 3.2 percent, the most intraday since Feb. 24. Boeing had declined 8.2 percent this year through Tuesday, the fourth-worst performance among the 30 members of the Dow Jones Industrial Average.

The manufacturer has touted the substantial cash it stands to generate as it produces jets from a near-record order backlog and starts to turn a profit on the 787, its marquee aircraft.

But Ron Epstein, an analyst at Bank of America, estimated that cash flowing from the Dreamliner by 2022 will be $14 billion rather than the $29 billion assumed in Boeing’s outlook.

To reach that number and eliminate the nearly $29 billion in deferred production costs already accumulated by the 787 program, Boeing would need to generate a profit of $30 million for each of the 907 Dreamliners it projects making for accounting purposes, Epstein wrote.

That profit goal is “unachievable,” he said. Generating $16 million in profit per plane was more realistic, Epstein wrote.

Boeing is likely to take a charge on the 787 program or increase the projection of 1,300 jets it is using to estimate future profits under U.S. program accounting rules, Epstein said.

SEC Investigation

Bloomberg reported in February that the U.S. Securities and Exchange Commission is investigating Boeing’s forecasts regarding the profitability of the Dreamliner and the 747 jumbo jet.

Boeing has maintained that it expects the 787 to recoup its costs and turn a slight profit under its current projections. The effort should be bolstered as the planemaker speeds Dreamliner production to 12 jets a month this year, a record for long-range aircraft, and as it manufacturers more of the largest and priciest 787 models. A Boeing spokesman wasn’t immediately available to comment.

(Julie Johnson - Bloomberg Business)

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