Boeing’s unique accounting method helps improve profit picture

Boeing started to make money on each 787 Dreamliner it delivers just this spring, but thanks to a unique accounting strategy the jet has been fattening the aircraft maker’s bottom line for years. Boeing is one of the few companies that uses a technique called program accounting. Rather than booking the huge costs of building the advanced 787 or other aircraft as it pays the bills, Boeing—with the blessing of its auditors and regulators and in line with accounting rules—defers those costs, spreading them out over the number of planes it expects to sell years into the future. That allows the company to include anticipated future profits in its current earnings. The idea is to give investors a read on the health of the company’s long-term investments. Boeing calculates its Dreamliner earnings based on 10-year forecasts of supplier contracts, aircraft orders and options, productivity improvements, labor contracts and market conditions, which are reviewed by its auditors. The company, which delivered its first Dreamliner in 2011, estimates it will sell 1,300 Dreamliners over the 10 years ending in 2021. So far, it has delivered nearly 500 of them. The problem, analysts and other critics say, is that Boeing’s approach stretches its profit per plane on the Dreamliner into such a distant and uncertain future that it isn’t clear if it will ever recover the nearly $30b it has sunk into producing the plane and validate years of projected profits.<br/>