Referring to $1.2bn of charges across various fixed-price programmes, Dave Calhoun, CEO of Boeing, said on CNBC “We love these development programmes and we love the work we’re doing and the performance of the airplanes, but the accounting proved difficult”

For us, the risk was signposted ahead of time through a close analysis of the 10-K. Our algorithms were assigning Boeing the highest risk score of 10/10. One of the key red flags related to a build up of contract assets, often associated with aggressive revenue recognition and subsequent adjustments. The risk is particularly acute in the current environment of high inflation, where it’s easy to overestimate the “percentage of completion”. An extract from our automated report below highlights the increasing balance.

‍

A reading of the 10-K (below) indicates that the increase in the contract asset was specifically associated with revenue recognised within BDS (Boeing Defence, Space and Security) and BGS (Boeing Global Services).

And so it was the BDS division that was responsible for the charges at Boeing, with a $660m charge coming solely from the problematic VC-25B programme (otherwise known as Air Force One).

Voluptatibus qui voluptatem at est. Aut est repudiandae adipisci et tenetur animi rerum. A voluptates totam sit quia. Neque animi incidunt corporis enim necessitatibus qui.

As indicated by the Q1 disclosure below, the charges resulted in “cumulative catch-up adjustments” whereby revenue previously recognised on the contract must be reversed out in the current period. As seen in the table below, the impact of this on Q1 revenue was $612m and the impact on earnings was over $1bn.