Boeing’s profit fell short of analyst estimates for the first time in five years, due to an accounting loss from the first refueling tankers built under a U.S. Air Force contract, but the market seemed more focused on improvements in cash flow and 787 Dreamliner production.

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Boeing said Wednesday it’s writing off $313 million for cost overruns on building Air Force refueling tankers as well as an expected shortfall in revenue from the sagging 747-8 jumbo jet program.

First-quarter profit fell to $1.2 billion, 9 percent lower than a year ago and 3 percent below consensus estimates, according to S&P Global Market Intelligence.

Yet Wednesday’s financial results also showed sharply higher cash flow, and Boeing Chairman and CEO Dennis Muilenburg, in a morning teleconference call, suggested the flood of cash will continue.

Muilenburg brushed aside fears of an industry downturn due to a glut of planes in the global market, saying Boeing will maintain plans to increase production of its 737 and 787 models. By the end of the decade, he said, Boeing will “ramp up annual deliveries to well above 900” airplanes — compared with the record 762 jet deliveries last year.

Boeing also stuck to its previous profit projection for 2016, indicating that management expects its performance in the remainder of the year will make up for the charges.

The markets accepted the reassurance, and Boeing stock rose 2.9 percent to close at $137.08.

While expressing confidence in the future, Muilenburg reiterated Boeing’s recent mantra that intense competition requires the jet maker to “stay on a steep and steady glide path to lower-cost performance.”

As part of that cost-cutting drive, Boeing Commercial Airplanes chief Ray Conner told local employees in February of a plan to shrink the workforce largely through voluntary layoffs and attrition that will eliminate 4,000 jobs by June, or about 5 percent of the local workforce.

An internal document obtained by The Seattle Times shows that one local Boeing unit is targeting a 10 percent cut by year end.

On Wednesday, Muilenburg described the anticipated reduction in jobs this year as “moderate,” adding there is an overall cost-reduction target, not a specific number of jobs to be cut.

Investor concern allayed

Boeing’s stock price has fallen from $145 at the beginning of the year as investors worried about an industry downturn.

Wednesday’s results allayed investor skittishness with a surge in operating cash flow last quarter to $1.2 billion, compared with $88 million a year earlier.

“It’s the gift that keeps on giving as Boeing absorbed another charge on tanker, but the cash-flow story is intact,” Jason Gursky, an analyst at Citigroup, said in a report to investors Wednesday.

Investors have been waiting for Boeing to generate a gush of cash from the 787 Dreamliner as costs stabilize.

Output will rise to 12 Dreamliners a month this year and to 14 a month later this decade, record rates for widebody aircraft.

And though some analysts predict Boeing will eventually have to swallow a large write-off on the 787 program, that didn’t happen this quarter.

On the 787, total production costs deferred into the future continued to grow, but the growth slowed considerably.

Boeing deferred about $5 million of the cost of building each of the 30 Dreamliners delivered in the quarter.

With almost 400 Dreamliners now delivered, the total 787 deferred production costs that must be repaid from future profits has climbed to $28.7 billion.

While previous Boeing jet programs targeted repaying the deferred costs by the time 400 planes were delivered, Boeing’s accounting target for the 787 is 1,300 deliveries.

Data in the quarterly financial filing show Boeing projects it can recoup the deferred production costs plus a further $3.8 billion in unamortized tooling costs — giving a total of $32.4 billion of deferred costs that must be recovered — on that protracted schedule but only by assuming an average profit of $36 million on each of the next 900 airplanes built.

With the tanker charge, plus higher development costs of $128 million primarily related to the 777X, plus eight fewer widebody deliveries in the quarter, overall profit at the commercial unit tumbled 36 percent to $1.03 billion from a year earlier.

Even so, the company paid out $717 million in dividends to shareholders and spent $3.5 billion to buy back 28.6 million shares during the quarter.

As a result, Boeing’s cash declined to $8.4 billion from $12.1 billion at the start of the year.

The repurchase activity along with the 777X development costs add to the pressure on Boeing to lower manufacturing costs, said George Ferguson, senior air-transport analyst at Bloomberg Intelligence.

“Clearly the biggest challenge in the middle of it is 787,” Ferguson said in an interview. “They’ve got to find a way to make it a more profitable program.”

Tanker glitches

Muilenburg said the $243 million pretax charge on the KC-46 tanker reflects the cost of incorporating and certifying engineering changes necessary as a result of issues that have surfaced during flight tests.

Because of earlier delays in the tanker program — which resulted in previous write-offs in 2014 and 2015 totaling $1.3 billion — Boeing is behind schedule.

To catch up, it is building production tankers even as the flight test program continues.

With all four test planes now flying, Boeing is building seven production tankers in Everett, one of which has already rolled out.

But as issues are discovered in flight tests and fixes are devised, all those airplanes, as well as the test planes, must be expensively modified, chiefly with changes to the electrical and fuel subsystems.

The latest such glitch came when a tanker test plane tried to refuel the big C-17 military transport, producing higher than expected stress along the rigid fuel boom connecting the two airplanes.

Boeing is working on a software fix that will reduce the stress by adjusting the alignment of the two planes in flight.

“We’re working to resolve the issue and we’ll have a better understanding if it works very soon,” said Boeing tanker spokesman Chick Ramey.

Muilenburg said the write-off doesn’t change the schedule, and Boeing is sticking to its commitment to deliver the first 18 tankers to the Air Force by August next year.

“We still see this in the long run as a franchise program, a market of around 400 aircraft … Without question, this is an investment worth making,” he said.

777 sales push

Boeing took a separate $70 million pretax charge in the quarter on the 747-8 jumbo jet. That’s in addition to the $885 million it wrote off on the program last quarter.

The venerable 747-8 has sold poorly, with Boeing’s hope for a revival pinned on a recovery in the air-cargo market that hasn’t materialized.

In September, Boeing will cut the 747-8 production rate from one jet per month to just one every two months, reflecting the dearth of sales.

With the program in such trouble, any new sales will inevitably be at steep discounts. Hence the newest charge, “to reflect lower estimated revenue from future sales.”

More worrisome is the 777 program, which employs many more in Everett.

Sales of the 777 have slowed dramatically since Boeing launched the new 777X model that’s due to enter service in 2020. Bridging the production gap until then depends on getting about 50 new sales each year.

Boeing has filled all the 777 production slots for this year, but only 80 percent of those for next year — and for 2018 and 2019, most of the slots are empty.

Muilenburg said winning orders to fill the 2018 slots is a priority.

He also alluded to the threat to Boeing’s share of the market for narrowbody jets posed by Bombardier’s new CSeries jet.

Delta is expected to imminently announce a large firm order for as many as 75 of the 130-seat CS300, finally providing market validation that could be a turning point for the Canadian jet.

Boeing’s similarly sized 737 MAX 7 has not sold well, and The Wall Street Journal reported this month that the jet maker is studying a design change to increase its range and seating capacity.

Muilenburg on Wednesday said “that is an area where we’re having active discussions with our customers,” but added it’s too early to announce any outcome.

Information in this article, originally published April 27, 2016, was corrected May 3, 2016. A previous version of this story incorrectly stated that Boeing projected to recover its deferred costs on the 787 program by assuming an average profit of $32 million each on the next 746 aircraft built and $54 million each on the next 161 aircraft built. A detail revealed later by Boeing changes the calculation and shows that in fact it is assuming an average profit of $36 million each on all 907 aircraft.