Boeing's Deferred Production Costs Grow Again Amid Ongoing Challenges

Boeing's strategy of spreading out production costs over the life cycle of an aircraft program is not inherently flawed. In fact, it makes sense to capitalize and accrue individual aircraft production costs in inventory, allowing them to be expensed over time and averaged out.

This approach helps smooth earnings over the life of a program, which can have high initial costs but lower margins as production ramps up. However, if Boeing's projections are overly optimistic, the company can fall into a cycle of building up capitalized costs in inventory only to write them off periodically.

As previously reported by Leeham News and Analysis, Boeing has been plagued by production and certification issues not covered by price escalation clauses with customers. If long-term revenue and expense assumptions are too rosy, the company may announce a reach-forward charge, where expected total costs exceed expected total revenues.