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The economic reality behind the Boeing plane Trump showed off

Workers walk outside the Boeing South Carolina Plant on Wednesday. (Randall Hill/Reuters)
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NORTH CHARLESTON, S.C. -- President Trump visited a Boeing factory Friday to show off the company's newest model of the 787 Dreamliner, the latest in a series of planes that experts describe as a marvel of aeronautical engineering. The fuel-efficient construction allows the newest model to fly from London to Cape Town, South Africa, without refueling — an extraordinary distance for a 330-passenger plane.

There is one number on which the Dreamliners are still coming up short, however: return on investment. Analysts say Boeing has sunk tens of billions of dollars into designing and building the various models of the 787. Investors who have been with the project since the beginning may never fully see their money back.

“If you view it through a technology lens, it’s a great success,” Barclays analyst Carter Copeland said. “If you view the program from its inception, it’s a big financial failure.”

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Last year, Ronald Epstein of Bank of America came to a similar conclusion. He told investors it was unlikely Boeing would recover its investment in the 787 program, Bloomberg News reported in April. Boeing is focused on improving production and profits going forward, spokesman Chaz Bickers said.

Trump promises focus on jobs, tax reform in speech at Boeing factory (Video: The Washington Post)

The program, which began producing planes in 2007, has been beset by delays and mishaps. Copeland said it is “virtually impossible to imagine” that investors will recover the fair value of the roughly $50 billion he estimates Boeing has put into the Dreamliner. Epstein put the amount of the investment at $29 billion.

Boeing is not disclosing the total investment in the project, Bickers said.

“Development costs are already spent — so we now focus on how we can improve profitability on production even more from here,” Bickers wrote in an email. “We have always said that the airplane has a very bright future — and like many of our other programs, will have decades of service ahead.”

For Trump, the visit is part of an emerging strategy of helping marquee American manufacturers using media savvy, salesmanship and subsidies. Soon after his election, Trump negotiated up to $7 million in state tax credits over 10 years for the  Carrier plant in Indianapolis, leading parent company United Technologies to reverse its decision to close the plant. Last week, Trump told lawmakers he wants to allow the controversial Export-Import Bank to resume subsidizing major exporters such as Boeing, breaking with conservative lawmakers who have obstructed the controversial federal agency in recent years, temporarily defunding it in 2015.

Yet economists have questioned whether Trump's dealmaking with individual firms will benefit American workers as whole, as the manufacturing industry loses jobs to automation and cheaper labor overseas.

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Meanwhile, despite all the cameras, bright lights and the marching band at the Boeing plant next to the Charleston International Airport on Friday, it remains to be seen whether the numbers will add up for Boeing's Dreamliner.

With the cameras trained on the president and the Boeing logo on the fuselage of the 787-10 Dreamliner behind him, Trump rattled off statistics about the plane. Then he listed each of Boeing's military aircraft, asking the audience if it thought the Air Force should buy the company's F-18 Super Hornet.

Trump had not come to sell planes, however. He was there to talk about economic policy, he told the audience. “My focus has been all about jobs, and jobs is one of the primary reasons I'm standing here today,” the president said.

“From now on, it's going to be America first,” he said. “Working together as a unit, there is nothing we cannot accomplish, no task too large, no dream too great, no goal beyond our reach, just like you built this incredible airplane behind me,” he added.

In effect, Trump was using the bully pulpit to present what analysts describe as a money-losing investment, from a firm in part supported by federal subsidies, as an example of his approach to the economy.

In 2008, Boeing's workers went on strike for eight weeks, delaying delivery of the plane's first model. In 2013, regulators grounded the fleet of Dreamliners worldwide when one plane's battery caught fire after a commercial flight from Tokyo to Boston. The following year, Boeing announced that cracks were appearing in the wings of about 40 Dreamliners in production, forcing more delays.

Copeland said that while Boeing is not necessarily to be faulted for these issues, a project as ambitious as the Dreamliner has little tolerance for mishaps.

“Building airplanes is really, really hard, and when you mess up, it’s really, really expensive,” he said. “The amount of money that was lost to get to this point is a very, very large sum.”

Production is going smoothly now, Copeland said, and Boeing's stock might be attractive for investors considering buying into the company now that costs related to designing the airplane and managing obstacles in manufacturing are out of the way. Sales of the 787 are generating cash that the company is returning to shareholders in the form of stock repurchases and a generous quarterly dividend, now worth $1.42 per share. In the long term, Boeing expects to net about $30 million in cash per plane.

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The two-engine 787 is a much smaller plane than the older, four-engine 747. Yet the 787's construction — partially made of a lightweight carbon-fiber composite instead of aluminum — allows it to fly transoceanic routes. Copeland said the new top-of-the-line 787-10 Dreamliner unveiled Friday will add to the cash flow. The catalogue price of the 787-10 Dreamliner is $306 million.

“The Boeing 787 program is going to be a great cash-generation machine for us over the next several years,” Boeing president Dennis Muilenburg told investors at a conference last week. He noted that the company has a backlog of about 700 preordered Dreamliners.

At the same time, some analysts are skeptical about the stock. While Muilenburg said that the company plans to increase production from 12 per month to about 14, Copeland and Goldman Sachs's Noah Poponak said they believe that plan is unrealistic, and that it is more likely that declining demand for the plane will soon force the company to reduce production to about 10 per month.

Boeing has been receiving about only four or five new orders a month, Poponak wrote in a note to clients this week, advising them to sell Boeing's stock.

“There are several reasons to believe demand could remain tepid,” Poponak wrote. He noted that declining oil prices reduce the demand for a fuel-efficient plane, and that Boeing now has competition from Airbus, the French manufacturer, which is developing next-generation planes of its own.

Bank of America's Epstein wrote that Boeing could expect only about $16 million in profit on each Dreamliner, about half the $30 million expected by Boeing.

Boeing spokesman Bickers confirmed that the company has not changed its forecasts for profits or the pace of production in the 787 program.

“We don't see any scenarios that would bring us below the current 12-a-month production rate,” Muilenburg told the investors. “We are very, very solid against a 12 per month production-rate skyline.”

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Another asset for the company is presidential goodwill. Trump has said he wants to support American manufacturers and help U.S. companies compete with their rivals overseas.

Last week, two Democratic senators said that Trump had told them he wants to allow the Export-Import Bank — a federal agency that provides loans, guarantees and capital to U.S. firms with customers abroad — to resume its regular business. Republicans in Congress view the bank as undue interference in the economy. They have been preventing it from lending for nearly two years, first by shutting down the bank temporarily and then by refusing to appoint enough members to its board to allow the agency to act.

As of 2013, Boeing was the bank's biggest customer, receiving $8.3 billion in guarantees and other financial help. Muilenburg has argued that without that support, companies like his are at a disadvantage.

“If international customers of tractors, turbines, airplanes or satellites can’t get financing from the United States, they’ll simply take their business elsewhere to one of the dozens of other countries with similar export-credit assistance,” he said last year.

Correction: This story has been updated to correct the spelling of Dennis Muilenburg's last name.