CMB56 From United States of America, joined Dec 2009, 235 posts, RR: 0 Posted (5 years 8 months 3 weeks 1 day ago) and read 32915 times:
There has been much discussion and speculation on where the breakeven point will be for the A380 program. I was wondering what the breakeven point will be for Boeing on the 747-8I. While this version or the F version are not clean sheet aircraft there is significant development cost unique to the -8I. So just how many will Boeing need to sell to show a profit on the pax version of the -8?
jfk777 From United States of America, joined Aug 2006, 9543 posts, RR: 6
Reply 1, posted (5 years 8 months 3 weeks 1 day ago) and read 32822 times:
The cost for Research and Development of the 747-8 are amortized by the freighters sold. Only 25 747-8 I's have been sold but many airlines have yet to buy A380 or 747-8's. These airlines could just stick with their 777-300ER as their biggest birds though. Cathay and ANA will have to do something at some point.
EA772LR From United States of America, joined Mar 2007, 2838 posts, RR: 11
Reply 2, posted (5 years 8 months 3 weeks 1 day ago) and read 32787 times:
I've heard that based on the numbers of 748F models sold, and the amount invested, including the $1B write off, they're pretty close to breaking even already. Different story on the 748I, though I believe it will break even, and eventually help turn a profit on the 748 program. I think between the two models the 748F will sell more than plenty to not just break even, but turn a profit for Boeing. The 748F is the only VLAF in town. So anyone needing VLAFs have one option really. The jury is still out on the 748I I think.
Quoting jfk777 (Reply 1): Only 25 747-8 I's have been sold but many airlines have yet to buy A380 or 747-8's.
Not including a few BBJ models as well so think it's around 30 or so, not that it makes a huge difference, but 5 frames likely not too discounted is a lot of money.
[Edited 2010-05-27 11:07:41]
We often judge others by their actions, but ourselves by our intentions.
N328KF From United States of America, joined May 2004, 6607 posts, RR: 3
Reply 4, posted (5 years 8 months 3 weeks 1 day ago) and read 32575 times:
I really don't think the 747-8 project, as a whole, exists to be profitable. That is, I'm sure they want it to be, but it's there to keep many customers (particularly cargo) within the fold, and to keep pressure on the A380. It's exactly why the 767-400 existed.
When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' T.Roosevelt
The 747-8 will likely be profitable because the freighters will continue to sell, especially as 747-400BCF/SFs get older. I don't think we'll ever get a straight answer from Boeing about costs specific to the passenger version, so we'll never know if it alone was profitable.
AADC10 From United States of America, joined Nov 2004, 2148 posts, RR: 0
Reply 6, posted (5 years 8 months 3 weeks 23 hours ago) and read 32352 times:
Quoting EA772LR (Reply 2): including the $1B write off, they're pretty close to breaking even already.
A one billion dollar write off? The only write it off if they have no hope of getting it back anytime soon and they are using the loss to reduce taxes. That would make the actual break-even some distance away.
max999 From United States of America, joined Dec 2005, 1131 posts, RR: 0
Reply 7, posted (5 years 8 months 3 weeks 23 hours ago) and read 32314 times:
Quoting jfk777 (Reply 1): The cost for Research and Development of the 747-8 are amortized by the freighters sold.
Someone correct me if I'm wrong, but I believe GAAP rules say the costs solely used for developing the Intercontinental must be amoritized separately. If $1B of costs was unique to the Intercontinental, on top of the 747-8 program, then it needs to be amoritized on a different schedule...depending on how long Boeing believes the Intercontinental program will last.
From an accounting perspective, it is possible that the Interncontinental program is unprofitable. I believe that Boeing has already stated this.
[Edited 2010-05-27 11:59:49]
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SEPilot From United States of America, joined Dec 2006, 7485 posts, RR: 51
Reply 8, posted (5 years 8 months 3 weeks 23 hours ago) and read 31957 times:
It is way too soon to tell whether or not the 748i will be profitable. After all, Boeing came very close to cancelling the 737, and look what has happened since. I doubt the same will happen to the 748i, but it could end up doing quite well. With the A380 available it will be scratching for orders, but it may end up with more than many on this forum think. The 748F will undoubtedly be profitable.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
pnwtraveler From Canada, joined Jun 2007, 2377 posts, RR: 11
Reply 11, posted (5 years 8 months 3 weeks 22 hours ago) and read 31506 times:
Boeing has said there were some more 748i orders in the pipeline this year (no quantity or hint of who). There have been broad hints of an Asian airline order both by Jon (Flightblogger) and others who seem to have an inside track and are very specific. Had the economic slowdown not hit the credit market and the in particular the travel volume, I think we would have had at least two more orders from airlines.
That being said as stated above, you have to define your terms carefully when you talk profitability. And as stated above, how you divide the development costs is key. If you simply use the incremental costs of developing the i version and allow the F version to carry the bulk, I think the Intercontinental has a chance of breaking even and turning a profit. In my mind even with the F version carrying the bulk of the development costs for the airframe etc. itself, it will turn a profit itself.
Without the F version Airbus may indeed have produced their A380F which would have helped the bottom line for Airbus. Although some may still feel the 777F might have still taken enough orders to put the A380F in jeopardy.
I might be proven wrong but I don't think the Intercontinental will ever be a big order story. However, if it does its job of taking A380 orders away, and breaks even, I think that is something Boeing would be very happy with. Now if the company doesn't turn a good profit overall, and if shareholders aren't getting their dividends, and share prices don't remain strong, then a 747-8i program is something that can come back and bite you where the sun doesn't shine. But if overall that group is happy, and the program helps keep the competitor off-balance or less profitable then that isn't a bad thing even if orders don't explode.
Stitch From United States of America, joined Jul 2005, 33660 posts, RR: 85
Reply 12, posted (5 years 8 months 3 weeks 22 hours ago) and read 31506 times:
The 747-8I on it's own does not need to be profitable as long as the entire program is.
Boeing said last year that the entire program is in a "loss position", however Jim McNerney noted earlier this year that Boeing refused bids from some customers that would have lost them money (which makes me believe the "name your price" offer said to have been extended to NH and JL has a hard floor that neither customer is as of yet willing to accept). I also recall him, or another senior Boeing executive. noting that if they can deliver the current combined 108-frame orderbook "on schedule", the program would be near breaking-even or perhaps even limited profitability, but I can't find a direct quote at the moment.
cobra27 From Slovenia, joined May 2001, 1103 posts, RR: 0
Reply 13, posted (5 years 8 months 3 weeks 21 hours ago) and read 31447 times:
Definitly a good investment 747-8, too bad its not technically inovative like 787. But still quite an improvement and the best freighter to date. An as it is only a small 747 spinoff, the cost of developing are only a fraction and probably break even write now. Nobody is jumping at A380, not to mention A380F. And those development costs are grossly exagerated. I can imagine that it cost billions to develop brand new 747 and built a factory for it, (for A380 also), but 15 billion euros for A380 is just nonsense. Even EU doesn't spend so much on an aircraft
vin2basketball From United States of America, joined Dec 2009, 348 posts, RR: 0
Reply 14, posted (5 years 8 months 3 weeks 21 hours ago) and read 31383 times:
The question is not necessarily whether the 748i breaks even, because all it needs to do is pay back the investment done only for the 748i, the 748F is the real money-maker.
That being said, I could see a future market for the 748i for airlines who want to upgrade from 77W/343, but don't have the kind of traffic to profitably fill an A380. Also for airlines like AF/KL, and BA, who will have large gaps between their A380, and next largest aircraft after 744s are retired. Perhaps 40 more orders???
WarpSpeed From United States of America, joined Feb 2010, 604 posts, RR: 3
Reply 15, posted (5 years 8 months 3 weeks 21 hours ago) and read 31353 times:
Quoting N328KF (Reply 4): I really don't think the 747-8 project, as a whole, exists to be profitable. That is, I'm sure they want it to be, but it's there to keep many customers (particularly cargo) within the fold, and to keep pressure on the A380.
Boeing is a for-profit entity with a board of directors and executives that have a stated goal of maximizing shareholder value. I doubt projects are approved simply to retain market share or stick it to the other guy at the expense of profits. The 747-8 project is "there" to make money. That it might retain market share or put pressure on the A380 is secondary.
Quoting Stitch (Reply 12): The 747-8I on it's own does not need to be profitable as long as the entire program is.
I'm not so sure about that...tossing McNerney's spin aside....As long as Boeing had a choice in whether to expend funds to develop/build the 747-8I in addition to the 747-8F, it better be profitable. There are incremental costs associated with the -8I that must be covered. There is no financial justification I know of to support the notion of the -8F program subsidizing its development. That the -8F makes enough dough to take the entire program into the black stands only to gloss-over the profitability trouble the -8I is facing.
Stitch From United States of America, joined Jul 2005, 33660 posts, RR: 85
Reply 16, posted (5 years 8 months 3 weeks 21 hours ago) and read 31109 times:
Quoting WarpSpeed (Reply 15): I'm not so sure about that...tossing McNerney's spin aside....As long as Boeing had a choice in whether to expend funds to develop/build the 747-8I in addition to the 747-8F, it better be profitable.
I imagine that the six 747-400ERs Boeing delivered to QF didn't cover the cost of offering the model for sale. But the 40 747-400ERFs delivered to ten customers likely did cover the cost of offering that model for sale and probably helped blacken the red ink of the 747-400ER.
Boeing has a long history of producing special models in low volumes for their customers, going back to at least the 707 program and the 707-138 for QF (which took delivery of 13). We also have the various domestic 747 models for NH and JL along with the original 787-3 plan. And while the program certainly didn't start out with that intent, there is also the 767-400ER for CO and DL.
Besides, to my knowledge Boeing does not release actual hard figures on an entire program's development costs, much less individual models. As such, analysts are forced to guess from those costs Boeing will admit to and their annual R&D budgets. So the stockholders have no way of knowing if the 747-8I made or lost money, but as long as the entire program is claimed to be in the black, I imagine many don't care. I certainly didn't during the times I was a Boeing stockholder.
All that being said, I do agree with you that I do not think Boeing is in the business of being philanthropic to their customers and developing loss-making models. They do so with the intent to make money and with the 747-400ER they expected at least CX and UA to order it and they certainly expected more profit-making 747-8I orders then they have at the moment.
keesje From , joined Dec 1969, posts, RR:
Reply 17, posted (5 years 8 months 3 weeks 20 hours ago) and read 30777 times:
When the 747-8 program was launched, Boeing was talking to 20 airlines and the bird was making heads turn.
After a year they still had no launch customer. In the end they were successful in convincing Lufthansa.
As a launch customer for a not so popular aircraft they likely did not pay a premium, to state it mildly.
Prices for freighters are under pressure because cargo airlines preferred cheap converted 747s for the last 20 years. Many good 747-400s waiting for conversion.
Last year Boeing told us the 747-8 program is in a loss position. All 747-8F orders are now older then 30 months.
The 747-8i has an unique fuselage, air-co system, cabin systems, galley, interiors, lavs, certification etc.
Now imagine setting up the supply chain for 25 passenger aircraft. Is it even worthwhile investing in automated production for a series of 25-35? Then you have to set a maintenance support organisation for those 25 747-8i aircraft, for 25 years.
This is not the future envisaged and I'm sure Boeing are not comfortable with where they are. Although that´s not what Randy is going to tell you.
WarpSpeed From United States of America, joined Feb 2010, 604 posts, RR: 3
Reply 18, posted (5 years 8 months 3 weeks 20 hours ago) and read 30480 times:
Quoting Stitch (Reply 16): Boeing has a long history of producing special models in low volumes for their customers
Let's hope that the -8I does not follow suit and has many orders to bring into profitability...
Quoting Stitch (Reply 16): to my knowledge Boeing does not release actual hard figures on an entire program's development costs, much less individual models.
However, the decision-makers have these numbers and can drill down pretty far. I hope they act rationally in assessing the merits of the program...
Quoting Stitch (Reply 16): I imagine many don't care. I certainly didn't during the times I was a Boeing stockholder.
I'm a current s/h and care very much. With that said, I like the idea of the -8I and think the board launched it with the business judgment that it would be profitable. However, circumstances have developed since then to justify revisiting the decision. There are those that say that Airbus should "shoot the dog" in reference to the A380. There is a strong argument to be made that Boeing should do the same with the -8I. Without the prospect of further orders, I would agree. I guess we are left to assume that Boeing has kept the program with the understanding that future orders are highly likely to justify the cost of the -8I "sub" program.
BoeEngr From United States of America, joined Feb 2010, 321 posts, RR: 35
Reply 19, posted (5 years 8 months 3 weeks 20 hours ago) and read 30324 times:
The employee and shareholder in me desperately wants the program to be successful, but the aviation enthusiast in me doesn't care. If I may be so shallow as to focus on looks, that is one beautiful ship, and the world is a much better place with her in it.
seabosdca From United States of America, joined Sep 2007, 7018 posts, RR: 7
Reply 20, posted (5 years 8 months 3 weeks 20 hours ago) and read 30324 times:
Quoting WarpSpeed (Reply 18): There are those that say that Airbus should "shoot the dog" in reference to the A380. There is a strong argument to be made that Boeing should do the same with the -8I. Without the prospect of further orders, I would agree.
Those arguments make no sense as applied to either the A380 or the 748. Even if neither program were to receive a single additional order, the vast bulk of the money to develop them has already been spent. Cancelling either program would just deprive the maker of cash flow from the frames already ordered.
Stitch From United States of America, joined Jul 2005, 33660 posts, RR: 85
Reply 21, posted (5 years 8 months 3 weeks 20 hours ago) and read 30235 times:
Quoting seabosdca (Reply 20): Those arguments make no sense as applied to either the A380 or the 748. Even if neither program were to receive a single additional order, the vast bulk of the money to develop them has already been spent. Cancelling either program would just deprive the maker of cash flow from the frames already ordered.
Exactly. With the information currently at hand, the correct course of action for both Airbus and Boeing was to never launch either program in the first place. But since they have, the correct course of action for both Airbus and Boeing is to ride it out and hope for the best.
SolarFlyer22 From US Minor Outlying Islands, joined Nov 2009, 1581 posts, RR: 8
Reply 24, posted (5 years 8 months 3 weeks 15 hours ago) and read 27219 times:
I think the word on the street is that it's about 50-100 frames to break even but that's spread out across the F model and the I model. I don't know what the combined order tally is but its probably not more than 50. Still, there is light at the end of the tunnel and the break even point is in sight. The problem with the estimates for both the 748 and A380 is that they keep getting revised upward but I believe the 748 is still the more likely to be attained. When you compare either VLA to the 787 or A350 its kind of a joke. Those planes passed the break even point with the first round of orders basically.
: What would the 747-8I's situation be right now if a combi was allowed? That said, is it mainly because of the South African 74M crash that future comb
: No teasing! Please provide the developments and signs.... This assumes each plane sold is actually generating positive cashflow. If it is, fine, pres
: In reality, I suspect Airbus would have been forced to shelve the A380F because of the programme issues, whether the 748 was there, or not. Sounds pl
: I am pretty sure that combi aircraft have not been banned, at least in the US. The only rule changes I am aware of dealt with operating QC aircraft a
: The company for which I worked for most of my career survived longer than any of its domestic competitors because it was the only one that was willin
: They will. For the airlines that have them in their fleet, that is. They both seem to be true cashcows. KL would have ordered it.
: As long as that continues to be the case, there will be a market for them, by definition. Rgds
: Even with the current production issues, I find this exceedingly hard to believe. Obviously I'm not associated with Airbus, but if it's really true t
: The A380 production chain is designed to build anywhere from two to four times as many frames per annum as currently are happening. So those infrastr
: Nothing has been banned. Only a fixed (no airflow possible) partition wall must be designed. Halon fire knock down system is already designed for the
: Also the initial deliveries will have been priced low with launch customer discounts, won't they? I wonder how many of the frames sold qualify for ge
: For me, a valid argument is that the development costs of the 747-8 have to be flagged against the costs of not doing anything with the program. At a
: There are discounts, but also the list price of the A380 has risen significantly in the past decade. So while the average list now is north of USD300
: One thing isn't mentioned here is that the 747-8 is an evolutionary design of an existing model, the 747-100/200/300/400, which has been flying for 40
: One question that's difficult to answer, is how many of the 748F sales would have gone to the 744ERF (or a mildly tweaked version) anyway, as the 747F
: Then I am fanboy, what does that mean?
: For what it's worth I'll virtually guarantee its true, if for no other reason than Airbus said it would be right back in 2006 But what they were taki
: Did some quick research (link to full article below) . "....the A380 business plan assumed sales of 750 aircraft. Airbus has booked 202 orders for th
: The actual quote was at the Q4 investors conference where McNerney said they feel the VLA passenger and freighter market is a bit below 750 frames an
: If it wasn't an evolutionary design, it probably wouldn't have happened.
: Which means that Airbus is going to take a huge bath on thier currency hedges. So the benifits of the lower Euro are not going to manifest themselves
: Hopefully, you may have been able to read into my earlier post, that :- 1) Most of the frames weren't originally SOLD at a loss (in fact my understan
: For what it's worth, I also place the A380 in the same category of "the world is a much better place with her in it"...
: I say bookmark this post - I think your estimates are about as good as we will get. So what is your guess about the 787?
: Correct, near term the EURO decline will not benefit Airbus. The hedges will hurt until they expire or the Euro recovers, but at least Airbus will be
: Take this with as much salt as you want - it's only my take.... But for consistencies sake, I harbour a theory that the return on the sale of a wideb
: At the latest Investment Conference, Boeing gave guidance that initial 787 margins would be low, but it would still provide not-insignificant revenues
: They also stated that the company in coming years will be generating a fair bit of cash. That suggests, in part, that the 787 will be cash flow posit
: And, there will be a bullet of cash flow at the end of 2010/beginning of 2011 upon delivery of all the production 787-8's that are being produced and
: If this is the case, if a customer like KLM requests a substantial order for a combi version, is it concevable that Boeing may offer one, hence also
: I do not see why not, however someone in another thread noted that KL was moving their cargo ops to the belly of their passenger planes instead of us
: I have enjoyed this thread. It has long struck me that the commercial airline business is not like other businesses. The profit margins in the best of
: Do you know what? I would guess that I work on quite possibly the most complex engineered product (a naval product) that humankind has ever created (
: It looks like profitability will undoubtedly come from the 747-8F; though I expect a lot more orders for the 747-8I, especially after the UA CO merge