How will Boeing's expense structure impact future earnings?

Boeing's expense structure is likely to have a significant impact on future earnings due to several factors:

1. **Deferred Production Costs**: Boeing's use of program accounting for the 737 Max deferred production cost has been increased by 730% between the end of 2018 and the end of 2023. This accounting method smooths the reported profits for a new aircraft program but can result in reduced future profits once the initial high costs have been accounted for. This could potentially lead to a decrease in future earnings as these costs are recognized.
2. **Operating Expenses**: Boeing's operating expenses have shown a general upward trend, with a slight decline in 2024 compared to 2023. The company's quarterly operating expenses have also shown fluctuations, with a significant decrease in the fourth quarter of 2024 compared to the previous year. If these trends continue, operating expenses could impact future earnings, especially if they remain high or increase again in the future.
3. **Labor Costs**: Boeing has recently implemented a 35% pay increase for its employees, which could significantly impact future earnings due to the increased cost of labor. This increase reflects the growing strain on pay inflation across sectors and could lead to higher expenses for the company.
4. **Legal and Regulatory Costs**: Boeing is facing a criminal fraud trial over the 737 MAX crashes, which could result in additional legal and regulatory costs. These costs, along with any potential fines or penalties, could negatively impact future earnings.
5. **Revenue Recognition**: Boeing's revenue recognition practices, such as the use of program accounting, could also impact future earnings. While these practices smooth reported profits in the short term, they can result in reduced future profits as shown in the 737 Max example. This could lead to a decrease in future earnings if the company continues to use these methods to manage its financial results.

In conclusion, Boeing's expense structure is likely to have a significant impact on future earnings due to a combination of deferred production costs, operating expenses, labor costs, legal and regulatory costs, and revenue recognition practices. The company will need to manage these expenses effectively to maintain or improve its future earnings.