Deferred Costs And Boeing's Dreams

Deferred cost is a noted Boeing contrived concept in program accounting. It takes so many billion to develop an airplane. In Boeing's case it spent about $30 Billion more developing the 787 than it had, so it programmed how many 787's it needed to build in order to pay-off that 30 $$ billion debt it had incurred. It also adjusts the number of production models it needs to build to pay for an ever expanding production debt as technology is developed and introduced to that aircraft. Kind of like a line of credit on its credit card.

Boeing needed about 1,100 of its 787 delivered to pay off this deferral of debt. Where each airplane it delivered was more efficiently built thus allowing more money available to pay down deferred 787 cost with each airplane it had built. However, the 787 incurred more debt greater than its production efficiency, so it had to increase the projected 787's it needed to deliver to reduced the deferred cost to a theoretical zero balance when delivering oh let's say 1,200-1,300, or 1600 hundred 787s. 

Each of those deferred costs broken down into units delivered while its benchmark kept increasing as the aircraft matured as the production cost increased because technology improvements were added as its development costs increased for those improvements. It's like a dog chasing its costs tail. Is 1,600 units the ultimate deferred cost benchmark? That answer remains to seen as Boeing has not yet sold 1,600 units and for what price going forward. I would speculate to say Boeing will sell enough 787 to past 1600 units but it will also take another five years to extinguish its 787 deferred development cost for the 787. The year 2025 is a more doable time frame for investors unless Boeing gets more significant breakthroughs on build costs through material efficiencies or equipment development.

Always improving is a cost factor that can be derived from from historical data. It can be a cost component factor turned into a quantifiable number as a forecasting component. Also sales or commitments is a number in the same position. It can be factored in a forward looking estimation from global history and commercial trends. Somewhere in between lies the fact. So a computer guess is needed to surmise where Boeing will reach its deferred costs nervana of zero balance after the (nth number) of units are delivered and revenue is realized for each unit against its actual current production cost.

There are two costs before the margin is establish. One portion goes towards the deferred balance and one towards the actual production of an aircraft. Once the aircraft is delivered, the accounting flows can continue through the accounting programs at an actual rate where deferred costs are actually reduced and a profit margin outside the deferred cost is applied. It becomes a tangled view of when
real value is recognized for the 787 program by investors. It is probably safe to say, investors must make money with Boeing during the near term investment cycles of stock values and during value increases or decreases. Investors may wait another five years for making money on the long term program completion from program Investment cycles. 

I am not a stock analyst and do not make recommendations for stock purchasing. I only guess like the next person what may happened in the "market place". So invest at your own capability, means or risk.