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Business

Boeing First-Quarter Earnings Climb But Concerns About Low Oil Prices Remain

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Ashley Gross
/
KPLU
Analyst Cai von Rumohr says it's encouraging that deferred production costs for the 787 program rose less than expected

Boeing’s first-quarter earnings climbed 38 percent on strong demand for commercial airplanes. But the stock slipped 1.4 percent, partly on concern that low oil prices could hurt sales.

Growth in air travel, especially in Asia and the Middle East, has helped boost demand for Boeing and Airbus planes in recent years. But the 40 percent drop in oil prices since last July has investors wondering whether airlines will decide not to buy the newer, more fuel-efficient aircraft. 

"To date, airlines have taken a wait-and-see attitude," said Cai von Rumohr, an analyst with Cowen and Co. in Boston. "They haven’t canceled anything, but they have kind of slowed down their new commitments."

Boeing Chief Executive Jim McNerney says demand for new planes is more correlated with airline profitability than with oil prices. Delta Air Lines, for one, reported that earnings more than tripled in the recent quarter. 

787 Production Costs

Overall, von Rumohr said he thought Boeing's first-quarter results were good. In particular, he said costs associated with the 787 Dreamliner program rose less than expected. 

Von Rumohrsays that’s encouraging especially because Boeing is now producing more of the newer 787-9 model, which is more expensive to build.

"That suggests that productivity did particularly well, and I think it did a bit better than their own internal plans," von Rumohr said. 

Boeing’s accounting method defers production costs into the future because early planes are a lot more expensive to build. Those costs for the 787 program now total $27 billion.

Boeing says it expects that this year will be the point when each 787 starts to bring in more money than it costs to build.