Boeing Reveals Its Magic Number: 1,100

Motley Fool Staff
Updated

821 down, 279 to go. That's the upshot of Boeing's (NYS: BA) Q3 earnings news, announced yesterday.

Oh, sure, Boeing told us more than that. It was "earnings" day, and headlines were all about the:

  • $1.46 per share that Boeing earned in Q3 (up 30% year over year).

  • Promise of $4.30, and perhaps even $4.40, in full-year earnings.

  • Somewhat less salutary news of a mere 4% increase in revenues, and the rollback in operating cash flow, which dropped 76%.

Back to the future
All that said, the real news yesterday was on the numbers behind the Dreamliner, Boeing's futuristic composite-skinned airplane -- and in many investors' opinion, the future of Boeing. According to management, Boeing has 821 Dreamliner orders "firm" from customers that include United Continental (NYS: UAL) , AMR (NYS: AMR) , and Delta (NYS: DAL) . A further 200 or so planes are under "option."

So when Boeing says it's "established the initial accounting quantity for the 787 program at 1,100 units," what this means is that if all firm orders turn into deliveries, and all options are exercised, Boeing need only sell 279 more Dreamliners and it will have covered its development costs. At that point, the company can begin booking Dreamliner orders at a profit.

Hold the applause. (Just send money.)
Investors thrilled to this news, bidding Boeing shares up 4.5% yesterday -- and I get that. There's a lot to be said for knowing where you're going, and now Boeing has given us a definite target: 1,100 planes. There are, however, a couple caveats that investors should keep in mind.

First, building 1,100 Dreamliners is faster said than done. Current plans have Boeing eventually building Dreamliners at the rate of 10 per month (up from two, currently). This means that even after Boeing gets up to speed, it will take more than nine years to build enough Dreamliners to break even.

Second, Boeing's 1,100-plane promise only covers development costs. Still to be quantified are the costs Boeing will incur for penalty payments to airline customers, and to stymied component suppliers including Spirit AeroSystems (NYS: SPR) , General Electric (NYS: GE) , and Honeywell (NYS: HON) , who've lost money waiting for Boeing to get its 787 kinks worked out.

Foolish takeaway
I don't mean to detract from Boeing's "earnings beat" -- which was impressive. But there's still proverbial miles to go before investors can sleep soundly, knowing the Dreamliner is a profitable plane. One good quarter down ... but 35 more to go.

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At the time thisarticle was published Fool contributorRich Smithdoes not own shares of (nor is he short) any company named above.You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 324 out of more than 180,000 members. The Motley Foolhas adisclosure policy.Motley Fool newsletter serviceshave recommended buying shares of Spirit AeroSystems Holdings.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.

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